Is the 30-year fixed rate mortgage a risky product?

 NEWS
Apr 132013
 
Is the 30-year fixed rate mortgage a risky product?

Is the 30-year fixed rate mortgage is just too risky of a product? Banks don’t like it because it creates asset-liability mismatch. It’s become a risky product for taxpayers because the mortgage underwriting process has become too easy and the risky loans are backed by the government, and the Ponzi type borrowers have taken advantage of the situation. The 30-year fixed-rate mortgage is government-sponsored product. In fact, it was the first affordability product, but it had underwriting requirements that reduce the risk to the lender and added stability to the banking system. The three simple underwriting requirements made this loan [Read More...]

The Federal Reserve owns 10% of all residental mortgage debt, increasing 5% per year

 NEWS
Feb 232013
 
The Federal Reserve owns 10% of all residental mortgage debt, increasing 5% per year

The Federal Reserve (US central bank) influences interest rates and by extension mortgages rates. One of their key tools is the buy or selling of bonds, it adds or subtracts money from the money supply . Since 2008 and the Federal Reserve has purchased over $1 trillion dollars worth of US residential mortgages in the form of bonds. The effect of this unprecedented mortgage bond purchasing pushed mortgage rates down to the lowest levels since the 1940′s. This $1 trillion dollar figure represents 10% of the of the outstanding residential mortgages in the US.  To explain it in another way, [Read More...]

Next week there might be an early definition and parameters of a “Qualified Mortgage”

 NEWS
Jan 052013
 
Next week there might be an early definition and parameters of a "Qualified Mortgage"

In the 1930′s when the federal government tried to stimulate the housing industry by creating Fannie Mae to standardize the 15-year and 30-year fixed mortgages thereby making more people eligible for home loans. In addition, Fannie Mae would sell these mortgages on the secondary market making more funds available for borrowing by the bank. This created a unified system of lending and solidified lending practices that nearly untouched for 70 years. Fast forward to the early 2,000′s and now we had dozens of exotic mortgage products, with new ones coming out every six months, so borrowers could afford higher and [Read More...]

FHA = subprime, 12.4% interest cost of FHA insurance, 50% risk premium

 DANA POINT, NEWS
Nov 302012
 
FHA = subprime, 12.4% interest cost of FHA insurance, 50% risk premium

Yesterday I described How to game the system with FHA loans for maximum advantage. Today, I want to look at the cost of that financing. It’s up to you to determine whether you believe the benefits are worth the costs. Many have quipped that FHA has become the replacement for subprime. They have very low standards for qualification (a 580 FICO score), a very low down payment requirement (currently 3.5%), and as a result, they have become the loan-of-necessity for anyone who doesn’t have the credit requirements or the down payment necessary to obtain other financing. In other words, they have [Read More...]

Future loan terms determine future home prices

 NEWS, ORANGE
Nov 272012
 
Future loan terms determine future home prices

One of my earliest posts in May of 2007 was about the impact future loan terms have on future home prices. Most people just assume house prices always go up. Their faith was shaken by a precipitous decline over the last six years, but once the bottom is securely in the rear-view mirror, kool aid intoxication in faith-based appreciation will undoubtedly return. I want to revisit the idea of future house prices depending on future loan terms because it makes a strong case for weak home price appreciation going forward. The how and why matters, and before kool aid takes [Read More...]

Rising down payments and loan costs will hinder a housing recovery

 NEWS, WESTMINSTER
Nov 202012
 
Rising down payments and loan costs will hinder a housing recovery

Besides credit qualification barriers due to low FICO scores, there are two barriers to originating more loans and selling more houses to owner occupants: (1) insufficient down payment, and (2) increasing loan costs. The FHA still originates loans at 3.5% down, and the credit barriers are limited, despite realtor pleas and rhetoric to the contrary. However, since the FHA is losing a great deal of money and facing a bailout, they are continually raising their insurance fees as they become the replacement for subprime lending. These increasing costs are making houses less affordable and thereby reducing access to credit. As [Read More...]

Are low rates an adequate substitute for low prices?

 DANA POINT, NEWS
Oct 162012
 
Are low rates an adequate substitute for low prices?

For the last several years I have written in favor of low prices as the best option for putting the country back of firm economic footing. The argument is simple: Low prices make for a lower cost of ownership which translates to more disposable income for homeowners to use to purchase goods and services to drive the broader economy. Disposable monthly income is a superior economic stimulus because it’s sustainable. The savings each month are consistent and reliable. Contrast that to HELOC money that comes in a lump sum and once spent requires larger payments which reduces disposable income. Lower [Read More...]

Low interest rate mortgages still require stellar credit scores

 LAGUNA NIGUEL, NEWS
Oct 112012
 
Low interest rate mortgages still require stellar credit scores

The availability of credit cycles from periods of tight underwriting standards to periods of lax standards. When credit is tight is when credit-fueled markets like real estate are most stable. In a tight credit environment, lenders are very focused on ensuring the borrower can repay the loan and the lender can recover their capital if they don’t. It would seem obvious and intuitive that lenders would always be focused on those things, but competition tends to drive standards down as lenders take more risk.  In the early stages of the credit cycle, lenders begin extending credit to less creditworthy borrowers. [Read More...]

Excessive student loan debt is another long-term drag on housing

 FULLERTON, NEWS
Mar 202012
 
Excessive student loan debt is another long-term drag on housing

When subprime borrowers defaulted and lenders foreclosed, the bottom fell out of the housing market. As the distress from toxic mortgage debt worked its way up the housing ladder, each subsequent rung collapsed. Only the upper tiers remain inflated, although probably not for much longer. With the collapse of the bottom of the market, the equity vanished that is necessary to sustain the upper levels of the housing market. In order for the housing market to find a stable bottom, first-time homebuyers must come forward to absorb the distressed inventory. Unfortunately, the typical pool of first-time buyers composed of recent [Read More...]

Benanke plans to print more money to buy mortgages

 COSTA MESA, NEWS
Jan 242012
 
Benanke plans to print more money to buy mortgages

The federal reserve is dominated by Keynesian economists who all have one thing in common: when their policies fail, they believe doing more will somehow succeed. If the definition of insanity is repeating the same behavior expecting a different result, then all Keynesian economists and all federal reserve officials are certifiably insane. Bernanke Doubles Down on Fed Bet Defied by Recession: Mortgages January 20, 2012, 3:40 PM EST — Bloomberg — By Jody Shenn Jan. 11 (Bloomberg) — Ben S. Bernanke is signaling his willingness to double down on a three-year bet that’s failed to revive housing, showing the extent [Read More...]

Report from the trenches: It really is tough to get a loan these days

 LAKE FOREST, NEWS
Jan 142012
 
Report from the trenches: It really is tough to get a loan these days

A reader recently emailed me his story on getting a loan on a property. I know first-hand how tough the banks are making it to get a loan, but mine are investment property loans, and they should have more scrutiny. I am always suspect when I hear complaints about the tougher underwriting standards because most people compare today’s standards with the non-existent standards of the bubble. However, hearing stories from very well qualified borrowers having troubles does make me pause and wonder if perhaps we have gone a bit too far tightening standards. I am writing to provide you with [Read More...]

Increasing borrowing costs will lower house prices

 NEWS, NORTH TUSTIN
Dec 222011
 
Increasing borrowing costs will lower house prices

Borrowing costs are likely to increase in 2012 for a variety of loans. The lower conforming limit will push many borrowers to either the FHA or the jumbo market where borrowing costs are higher. The FHA may also raise its borrowing costs again to cover the inevitable losses from the ongoing decline in home prices. Further, the new rules on conforming mortgages will push up costs on loans which do not conform. The result of higher borrowing costs will be greater pressure on home prices. If borrowing costs go up, affordability declines, and it’s only affordability which will put a [Read More...]

Lower conforming limit causes 84% decline in loan volume

 COTO DE CAZA, NEWS
Dec 162011
 
Lower conforming limit causes 84% decline in loan volume

In Los Angeles and Orange Counties, the conforming loan limit dropped from $729,750 to $625,000 on October 1, 2011. Many market bulls claimed this would have no effect on sales. In November sales of houses with loans between $625,000 and $729,750 declined 84% as compared to last November. So much for having no impact. In other news, the falling prices are beginning to motivate some buyers as evidenced by the small increase in sales volume. Falling prices and increasing sales are prerequisite to forming a durable market bottom. SoCal home sales rise on declining prices by KERRY CURRY — Wednesday, [Read More...]

FHA loan limits go back up to $729,750 in Irvine

 IRVINE, NEWS
Nov 292011
 
FHA loan limits go back up to $729,750 in Irvine

When the conforming limit for GSE and FHA loans went down in October, borrower spending power went down with it. In response to the dramatic drop off in demand, Congress has voted to increase the FHA loan limit back to $729,750 through 2013. Congress votes to raise FHA loan limits By Margaret Chadbourn WASHINGTON | Fri Nov 18, 2011 2:43pm EST (Reuters) – The U.S. Congress on Thursday approved a bill to raise the maximum size of mortgages the Federal Housing Administration can insure and sent it to President Barack Obama to sign into law. The measure would push the [Read More...]

Defining qualified residential mortgages: a battle over minimum down payments

 NEWS
Mar 212011
 
Defining qualified residential mortgages: a battle over minimum down payments

America was a frontier country. People flocked to America from Europe for the opportunity to own their land, something denied to most living in post-feudal Europe. The idea of having a piece of property with your own pink house is deeply woven into the American culture. it’s part of our history, and to this day, many identify home ownership with being American. I wrote about our modern perversion of ownership in Money Rentership: Housing and the New American Dream. Questions of our concepts of financing and ownership are coming to surface in Washington as we take up debate on down [Read More...]

Fannie Mae and Freddie Mac should be dismantled in favor of private lending

 NEWS
Feb 172011
 
Fannie Mae and Freddie Mac should be dismantled in favor of private lending

Should the government provide loan guarantees to subsidize home ownership? The arguments in favor of government subsidies all come down to putting people into homes they cannot afford in a free market. The theory is that homeowners care more for their properties and community and are less likely to cause social unrest. There is no real evidence to support this idea, but expanding home ownership has been the cornerstone of government policy since before the Great Depression. The arguments against are summarized below. Ten Arguments Against a Government Guarantee for Housing Finance By ANTHONY RANDAZZO From the Reason Foundation — [Read More...]

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