Sep242013
With rising interest rates, loan assumability makes a comeback
I like to look into the future and stay ahead of the news cycle when I can. Three and a half years ago, I first wrote about loan assumability as a feature would garner new attention once interest rates began to rise. With the recent spike in interest rates, and with the widespread perception we are past the bottom of the interest rate cycle, the first article on this subject finally surfaced in the MSM. Expect many more to follow over the next several years.
Taking Over a Seller’s Loan
By LISA PREVOST — Published: September 19, 2013
Homeowners with a mortgage insured by the Federal Housing Administration or the Department of Veterans Affairs should consider using their loan terms as a marketing tool when it comes time to sell.
Mortgage loans from both government agencies include a little-known feature known as assumability. In other words, the buyer of a home financed with an existing F.H.A. or V.A. loan may be able to take over, or assume, the seller’s loan, under the same terms, rather than take out a new mortgage.
During periods when interest rates are rising, homes offered for sale with an assumable, lower-rate mortgage may have extra appeal for certain buyers.
“You could now have a seller saying, ‘I have a great house to sell you and a great mortgage to go with it, which is better than my neighbor, who only has a great house,’ ” said Marc Israel, an executive vice president of Kensington Vanguard National Land Services and a real estate lawyer. “It’s a very clever idea.”
It may be clever, but the idea is also very old. The interest rate cycle is very long, and we witnessed steadily declining mortgage rates from 1981 to 2013. So for the last 33 years, nobody thought about assumability because there was no reason to do it. Back in the 1960s and 1970s, loan assumption was common practice. Now that we are entering the long ride up for interest rates, assumability will come back into vogue.
The savings for buyers assuming a loan extend beyond a lower interest rate. Assuming a loan is cheaper than applying for a new one because there are fewer settlement fees. An appraisal is not required (though a buyer may want to obtain one anyway). And in New York, borrowers assuming a loan do not have to pay the hefty mortgage recording tax a second time, Mr. Israel said.
F.H.A. loans do demand that the borrower pay for mortgage insurance over the life of the loan. But when assuming a loan, borrowers do not have to pay the upfront mortgage insurance premium required on a new loan, according to John Walsh, the president of Total Mortgage Services in Milford, Conn.
And, he noted, because the original mortgage holder would have been paying the loan for a number of years, the buyer assuming the loan will start at a point deeper into the amortization schedule than on a new loan. That means more of the monthly payment will go toward principal.
“In a rising rate environment, assumability is a very attractive option,” said Katie Miller, the vice president of mortgage products for Navy Federal Credit Union. “It ends up making homes that much more affordable.” …
Borrowers considering loan assumption should weigh the costs against other loan options, paying attention to the principal and interest payment, the amount of cash required upfront, and the private mortgage insurance premium. “At the end of the day,” Mr. Walsh said, “if the prospective buyer can come up with the down payment and qualify for the loan assumption, then it could be a huge benefit.”
After I first wrote my post on loan assumability, I became less enamored with the idea because the FHA raised it’s costs so much, but despite the problems, many people will use FHA financing, and loan assumptions will become much more common in the future.
Assumption of Mortgage
Even if price appreciation does not materialize, there is still a method for obtaining financing equity from property from a little-known and oft-forgotten loan term known as assumption.
Assumption of mortgage is the purchase of mortgaged property whereby the buyer accepts liability for the debt that continues to exist.
To be more precise, the borrower is assuming both the rights and obligations of the promissory note and the Deed of Trust. Assumable loans have been around as long as lending. Borrowers seeking release from their payment obligations usually sell for cash and terminate the loan; nonetheless, a qualified new buyer may assume the previous borrower’s liability and simply take over making payments on the loan.
Lenders despise mortgage assumptions (and they should)
Both buyers and sellers benefit from assumption, but lenders suffer — which is why assumption is generally limited to government programs and adjustable-rate mortgages; lenders do not want their fixed-rate loans assumed.
Lenders borrow short to lend long; in other words, when they underwrite you a 30-year loan, they obtain the money they loan you with short-term borrowing, mostly from savings accounts, maybe even your own. In the industry this problem is known as an asset-liability mismatch. If lenders have a portfolio of low-interest loans outstanding in a high interest rate borrowing environment, they experience a negative spread, and eventually go bankrupt. In fact, much blame for the Savings and Loan fiasco traces back to a negative spread condition and asset-liability mismatch during the early 80s.
Rather than letting thrifts die, we deregulated and allowed them to build taxpayer insured Ponzi Schemes prompting a massive government bailout. The Savings and Loan industry collapse was the early warning of problems with banking deregulation — not all deregulation is good; for instance repeal of the Glass–Steagall Act was a disaster as it enabled the conditions that contributed to our global Ponzi Scheme that collapsed in late 2008.
In rising interest-rate environments lender spreads are squeezed but not eliminated as older, low-interest loans are replaced with newer, high-interest loans. If all loans were assumable, lenders would be handicapped in their ability to rematch their assets and liabilities. To avoid asset-liability mismatch, lenders put due-on-sale clauses in their promissory notes specifically to prevent low-interest loans from surviving to term with a series of debt-assuming owners.
Fortunately for buyers, the federal government cares not about making a profit or cost of financing, and they hold loans to term; as a result, assumable loans are underwritten to standards compliant with FHA or other government programs and insured by same.
Understanding by example
A buyer looking at properties like today’s will spend nearly $4,000 a month paying down a 30-year mortgage on a $900,000 house (current FHA loan cap is $729,750 in Irvine). Fast forward ten years, and the future buyer of this property will likely be able to afford a $6,000 monthly payment, but since interest rates will also be higher, the mortgage is not larger, and thereby, prices are not higher. As I mentioned in, A Theory of House Prices and Housing Markets, expanding mortgage balances are necessary for prices to appreciate, and rising interest rates cause mortgage balances to contract rather than expand. In fact, if interest rates move higher faster than wages, prices decline.
If a future buyer is spending $6,000 per month to borrow the same amount that $4,000 supports today, then the future buyer would be $2,000 a month better off by assuming the old loan at 5% rather than underwriting a new one at 9% or higher. It is the desirability of the low payment on the old loan that makes assumption work.
Any rational buyer would want to assume a loan with lower payments and fewer than 30 years remaining to pay. The only downside for a buyer is that they will never refinance into a lower interest loan simply because they already have one. I have written many times about the virtue of buying when interest rates are high and refinancing into a lower interest rate to accelerating amortization. Buyers obtain this same benefit through assumption, and sellers can extract value from the transaction.
Seeing this potential outcome in advance will help you position yourself to take full advantage. Most fixed-rate private loans — including those issued by GSEs — are not assumable, and borrowers who utilize financing today with due-on-sale clauses will have no opportunity to extract value from their financing.
Sell faster or sell for more
If interest rates rise, assumable fixed-rate financing has value even if the financing has not been in place long. For instance, if a buyer must become a seller two or three years into their mortgage – and if they have equity and can sell – they will have a significant advantage over sellers with similar properties who do not have assumable loans. A few years from now, the lower mortgage payment will be an attractive feature prompting buyers to select one property over a neighboring one. If you faced two competing properties but one offered an assumable loan that reduces your payments 5%-10%, all things being equal, wouldn’t you chose the one with the lower payment? I would.
As interest rates go up and time passes (which reduces remaining amortization), an assuming owner enjoys monthly savings and a shorter amortization schedule. At first, this is merely a sales point, but at eventually, the benefits accruing an assuming owner morphs into a source of real monetary value a seller can obtain.
How to use owner financing to obtain equity from assumable loans
There are three primary ways owners obtain direct and measurable financial value from their assumable loan:
- Buyer increases down payment and pays more total dollars
- Seller offers and buyer accepts a seller-financed second mortgage and the seller either keeps the cashflow or discounts the loan in the secondary market and obtains a one-time cash infusion.
- Seller offers and both buyer and lender accept a wrap-around mortgage.
The first concept – buyers increasing their down payment and paying more total dollars — should be familiar to anyone who has prepaid interest points when originating a loan. 
People frequently pay interest up-front in order to lower their interest rate and monthly payments over the life of the loan. When a buyer assumes a seller’s low interest-rate loan, they are doing the same thing, but instead of that money going to a lender (or mortgage broker) that money accrues to the seller. Do you see why lenders hate assumption?
The second and third concepts — issuing seller financing as either a second mortgage or wrap-around mortgage — are far less common and much more complicated, but the financial rewards are great, and any seller with an aging and assumable first mortgage should explore the options assumable financing creates.
Seller financed second mortgages
Let’s go back to the opening example of a loan issued today with a $4,000 monthly payment. Fast-forward to 2020, and the same loan balance financed at 9% yields a $6,000 a month payment. Obviously, a buyer would prefer the $4,000 payment to a $6,000 one, and the seller would like to extract the equity accumulated through paying down the loan balance plus a premium for the value of their financing.
If the seller allowed themselves to be taken out by a buyer using a conventional loan, they would obtain the $138,619 in financing equity obtained by paying down their mortgage debt, and at the closing, the sales price would show no change, and the seller would obtain a check for their financing equity minus fees. However, If the seller offers and the buyer agrees to a second mortgage with a $2,000 payment for a 15-year term at 9%, the seller would obtained an annuity worth $197,186 when the loan balance has only been paid down $138,619 for a value-added of $58,567 or about 8%.
(The annuity value of a $2,000 monthly payment over 15 years discounted at 9% is $197,186)
Why would a buyer agree to this? Well, if you were buying this property in 2020, you are still paying $6,000 a month, so you are no worse off on a monthly payment basis, and your total debt is the same, so you are no worse off on a total debt basis; however, and this is a big however, you will have one loan on a 15-year amortization schedule and another with 20 years remaining out of 30 — you have just accelerated your amortization and reduced your Time to Payoff. I would take such a deal, wouldn’t you?
Both buyer and seller benefit greatly from assumption; only lenders dislike it.
Wrap-around mortgages
Wikipedia’s description is well written, so I relay it in full here:
A wrap-around mortgage, more-commonly known as a “wrap”, is a form of secondary financing for the purchase of real property. The seller extends to the buyer a junior mortgage which wraps around and exists in addition to any superior mortgages already secured by the property. Under a wrap, a seller accepts a secured promissory note from the buyer for the amount due on the underlying mortgage plus an amount up to the remaining purchase money balance.
The new purchaser makes monthly payments to the seller, who is then responsible for making the payments to the underlying mortgagee(s). Should the new purchaser default on those payments, the seller then has the right of foreclosure to recapture the subject property.
Because wraps are a form of seller-financing, they have the effect of lowering the barriers to ownership of real property; they also can expedite the process of purchasing a home. An example:
- The seller, who has the original mortgage sells his home with the existing first mortgage in place and a second mortgage which he “carries back” from the buyer. The mortgage he takes from the buyer is for the amount of the first mortgage plus a negotiated amount less than or up to the sales price, minus any down payment and closing costs. The monthly payments are made by the buyer to the seller, who then continues to pay the first mortgage with the proceeds. When the buyer either sells or refinances the property, all mortgages are paid off in full, with the seller entitled to the difference in the payoff of the wrap and any underlying loan payoffs.
Typically, the seller also charges a spread. For example, a seller may have a mortgage at 6% and sell the property at a rate of 8% on a wraparound mortgage. He then would be making a 2% spread on the payments each month (roughly, anyway. The difference in principal amounts and amortization schedules will affect the actual spread made).
As title is actually transferred from seller to buyer, wraparound mortgage transactions will violate the due-on-sale clause of the underlying mortgage, if such a clause is present.
Note that pesky due-on-sale clause is back. Lenders do not like wraps any more than they like assumption and they dislike it for the same reasons, asset-liability mismatch.
Facts about loan assumptions
I wrote to Soylent Green Is People with help in writing this post, and he provided me the following list of facts about assumption:
- Assumptions do not require a down payment. If the seller has equity it’s paid to the seller. If the loan is break even to value to upside down, it’s simply taken over.
- Assumptions do not (for the most part) require appraisals. It depends on the investor. An FHA insured loan would not require an appraisal, a private investor ARM loan would.
- Credit qualifying is based on underwriting standards available at that time. Income, assets, credit, and debt to income ratios apply.
- Condo project HOA’s are not re-evaluated. If an FHA loan was made in an association that was acceptable at origination but has since deteriorated, it is of no issue to the assumption department. Since the borrower must credit qualify for the assumption, the current HOA dues might impact the buyers ability to qualify, but that’s the absolute depth of scrutiny these loan applicants will get.
- “All in” lender costs to assume is about $1,500 per transaction. It is not a scalable fee. There will be escrow, title, and other non lender costs, but minimal at best.
- The loan must be originated and in place for 12 months before an assumption can be completed.
- The seller or borrower must pay any escrow shortage/past due interest.
- These are our current guidelines, subject to change of course, and not applicable to every lender, but likely similar to what everyone else has as policy.
- We get “many” requests to assume, but are closing 1-2 per month. I’d say this is likely due to below market financing available today. Most vintage 2005- 2008 FHA loans were priced in the high 5′s. 2009 FHA loans do not have 12 month seasoning yet. Project forward into 2011-2012 – if we aren’t all wiped out from the planetary alignment/Mayan calendar event…. I’d guess there will be plenty of cheap rates available for buyers willing to purchase FHA financed homes through assumption of the original note.
The GSEs will underwrite ARMs with assumability, but since they are ARMs, the assuming buyer is not locked in to a low rate, so it becomes worthless and pointless. Assuming an ARM does not work like assuming a fixed loan. Don’t mistake one for the other. You want to take out an assumable fixed-rate loan.
Squatting: why the high-end hasn’t collapsed
Conventional wisdom says that owners in high-end neighborhoods are sitting on mountains of equity, and since they are generally high wage earners, they are also paying their mortgages. Unfortunately, that isn’t the case. Delinquent jumbo loans in Coastal California pollute bank balance sheets. Today’s featured property is one of many multi-million dollar mansions where the owners squatted for over four years.
Foreclosure Record
Recording Date: 10/17/2012
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 06/22/2012
Document Type: Notice of Default
Foreclosure Record
Recording Date: 03/29/2012
Document Type: Notice of Rescission
Foreclosure Record
Recording Date: 11/30/2011
Document Type: Notice of Default
Foreclosure Record
Recording Date: 06/11/2010
Document Type: Notice of Default
Foreclosure Record
Recording Date: 11/13/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 08/06/2009
Document Type: Notice of Default
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[idx-listing mlsnumber=”OC13192178″ showpricehistory=”true”]
16 GENEVE Newport Beach, CA 92660
$3,625,000 …….. Asking Price
$4,100,000 ………. Purchase Price
7/28/2005 ………. Purchase Date
($475,000) ………. Gross Gain (Loss)
($290,000) ………… Commissions and Costs at 8%
============================================
($765,000) ………. Net Gain (Loss)
============================================
-11.6% ………. Gross Percent Change
-18.7% ………. Net Percent Change
-1.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$3,625,000 …….. Asking Price
$725,000 ………… 20% Down Conventional
4.87% …………. Mortgage Interest Rate
30 ……………… Number of Years
$2,900,000 …….. Mortgage
$753,488 ………. Income Requirement
$15,338 ………… Monthly Mortgage Payment
$3,142 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$755 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$230 ………… Homeowners Association Fees
============================================
$19,465 ………. Monthly Cash Outlays
($2,774) ………. Tax Savings
($3,569) ………. Principal Amortization
$1,357 ………….. Opportunity Cost of Down Payment
$473 ………….. Maintenance and Replacement Reserves
============================================
$14,952 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$37,750 ………… Furnishing and Move-In Costs at 1% + $1,500
$37,750 ………… Closing Costs at 1% + $1,500
$29,000 ………… Interest Points at 1%
$725,000 ………… Down Payment
============================================
$829,500 ………. Total Cash Costs
$229,200 ………. Emergency Cash Reserves
============================================
$1,058,700 ………. Total Savings Needed
[raw_html_snippet id=”property”]
Lowering Conforming Limit Will Diminish Demand
The Federal Housing Finance Agency may reduce its conforming loan limits for Fannie Mae and Freddie Mac-purchased loans, creating a new opportunity for the private jumbo market to soar again.
While lower government-sponsored enterprise loan limits and higher guarantee fees reflect continued efforts to reduce the government’s footprint in the mortgage market, a private-label takeover may be more expensive and burdensome to the market, analysts with Royal Bank of Scotland (RBS) said. In other words, it’s not an easy transition.
“The lower loan sizes will continue to help boost the jumbo mortgage market as loans above the limit would have to be funded by private investors,” explained RBS mortgage-backed securities analysts Sarah Hu and Ashley Gam.
They added, “However, without government backing, those borrowers who once qualified for conforming high balance loans will find themselves facing jumbo rates. In addition, they will have to meet jumbo/non-conforming guidelines that require larger downpayments and higher credit scores.”
I’ll believe it when I see it ….
When the rubber meets the road, I don’t see them lowering these limits any time soon. I was surprised when they did two years ago, but they left the limit alone for FHA loans to help support the market.
Lack of First-Time Homebuyers Hurting Homebuilders
Lennar (LEN) and KB Home (KBH) will release earnings Tuesday, providing the market a glimpse at how builders are faring in a market riddled with reluctant first-time homebuyers.
In anticipation of the firm’s earnings, Sterne Agee analyst Jay McCanless maintained neutral ratings for both builders, recognizing that without new first-time homebuyers they will be somewhat strained.
According to McCanless, both KB Home and Lennar’s buyer mixes are skewed with first-time buyers making up 70% and 60% of their business, respectively. Because of this, the analyst says reluctance among first-time buyers is largely responsible for the second-quarter orders at both companies missing their estimates.
McCanless forecasts 30% year-over-year order growth for Lennar in the third quarter of 2013 and 10% year-over-year growth for KB Home, estimates he believes are achievable.
However, the analyst added that first-time buyers comprised only 28% of August existing home sales versus 29% last month and versus the historical average of 40% to 45% — a sign entry-level buyer access to mortgage financing may not be improving.
Walt Molony, economic issues media manager at the National Association of Realtors, believes first-time buyers are underperforming in the current market because of limited inventory and strict loan restrictions.
Housing Market Slowing in All Categories
The U.S. housing market may be starting to taper off in comparison to the strong growth of the last several months, according to a new survey by Campbell/Inside Mortgage Financing HousingPulse. The survey involves approximately 2,000 real estate agents nationwide.
The data showed a slower growth rate in all categories of home sales: first-time homebuyers, current homeowners,
and investors. Investors fared the worst, with their business traffic registering below what the survey considers a “flat” level. Investors appear to be fueling a slide in the sale of distressed properties as well.
“The HousingPulse Distressed Property Index, a measure of distressed properties as a share of total home purchase transactions, fell to 25.4 percent in August, based on the three-month moving average,” the report said. “That was not only down from a distressed property share of 35.8 percent seen as recently as last March, but also the lowest level ever recorded by the HousingPulse survey.
“The market is slowing dramatically following the increase in interest rates. Numbers in October/November will start to show the price plateau and sales volume decline,” reported one real estate agent from California.
“Even with the slowdown in traffic, both current homeowners and first-time homebuyers groups are still posting relatively strong traffic numbers,” the survey concludes.
Coined a new term today: “Fed Fake”
It’s like head fake, but even bigger. The Austrians explain the false signals, created by centrally regulating interest rates and money supply, which are then misinterpreted by market participants (“Housing has bottomed and is in the bull cycle”).
Monetary policy is forcing investors out of savings and into inflated assets further out on the risk curve. Yeah, that sounds sustainable.
When do they come out with assumable loan modification? I waiting for that one.
If these loan modifications are supposedly “permanent,” then why not? Let the next borrower benefit from the bank’s mistakes and the government bailout too.
Student Debt, tuition costs, and housing in one article.
These Tiny Wooden Houses Are The College Dorm Of The Future
A few years ago, Swedish student housing company AF Bostäder had a young woman from the city of Lund inside live in a tiny house-box–not even 10 square meters large–to test the idea of a cheap, cheerful, and environmentally friendly “smart student unit” that included a toilet, kitchen, and bed. “I think she still lives there,” says Linda Camara of Tengbom Architects, the company behind the 2013 iteration of the living pod–a petite vision in pale wood offset with lime green plant pots, cushions and stools.
The premise for the cube, which has been in the works since 2007, is reasonable enough: students live and die on cheap housing, but everyone needs a toilet. It’s taken six years to whittle the tiny houses down to the current cross-laminated wooden test model form. The large kitchen was squirreled away in the original blueprint, but Tengbom redesigned it as the prime area after student feedback. The current space-efficient design, complete with a patio and vaulted sleeping area, lowers standard rent rates by 50%–music to the ears of any economically bereft twentysomething.
July Case Shiller Indices Improve But More Slowly
Home prices rose in July by less than two percent for the first time since March but still reached their highest level since August 2008, according to the Case Shiller Home Price Indexes released Tuesday. The 20-city index was up 1.8 percent in July – 12.4 percent in the last year — while the companion 10-city index was up 1.9 percent, 12.3 percent since July 2012.
Economists surveyed by Bloomberg had expected the 20-city index to increase 2.0 percent from June, a 12.4 percent annual improvement.
All 20 cities included in the survey improved both month to month and year to year.
The two surveys have improved month-month and year-on-year for 14 consecutive months.
The Case Shiller report came as the Federal Housing Finance Agency (FHFA) said its House Price Index rose in July at the fastest pace since March. The FHFA index tracks values for only those homes with loans eligible for purchase by Fannie Mae or Freddie Mac generally those with lower values.
The Case Shiller 20-city index rose 1.4 percent in March and then by more than 2.0 in April, May and June. The 10-city index rose 1.3 percent in March followed by three straight months of gains greater than 2.0 percent.
The 10 city index rose to 176.52, up 3.23 from June’s 173.29, June’s index itself was revised down from the originally reported 173.37. The 20-city index was up 2.90 from June’s 159.59. The June index was not revised. In August 2008, the 10-city index was 176.71 and the 20-city index was 164.65.
Can you imagine….. even despite 5 long years passing since the edifice crumbled, + $millions upon $millions in sell-side lobbying expenditures, multiple buyer tax credits, down payment assist gimmicks, accounting fraud, other fraud, the fed purchasing >$3 trillion in bond and MBS + >300% expansion of its balance sheet, yet Case/Shiller index LA/OC has only recaptured 1/3 of peak to trough losses.
Clearly, you can force capital into unprofitable sectors after all
They had to force just to get the rebound. If nature had been allowed to take its course, we would still be groping for a bottom at much lower price levels.
You permabears need to open your eyes. Even housing in Detroit is showing a 17% year over year increase.
Bwa-ha-ha-ha-ha-ha-ha-ha-ha!
bwahahaahahahaaaa indeed. Love it!
Reminder: Bubble/bust is the model. Re price action, it’s ‘escalator-up, elevator down’, so this type of movement merely provides a higher point from which to short. Bring it!
Further proof that real estate prices now in a zombie economy are much more responsive to cheap money than they are to traditional economic factors like unemployment, job growth and migration.
Welcome to the new centralized world.
Blame Citi layoffs on shifting mortgage landscape
As demand falls for new loans, especially refinancings, banking institutions are cutting back and letting go of workers who specialize in originations.
The trend continued this week with CitiMortgage (C) announcing the elimination of 1,000 positions in underwriting and mortgage-default operations, explained Citigroup spokesperson Mark Rodgers.
More than 750 job cuts will take place in Las Vegas, 100 cuts will happen in Irving, Texas, and the remainder will take place around the country.
“While difficult, these actions reflect our ongoing efforts to increase operational efficiency, adapt to changes in the marketplace, and position the business for the future,” Rodgers said.
He added, “Citi will help impacted employees identify opportunities both inside and outside of the company. Impacted employees will be eligible for Citi severance benefits and transition support.”
The massive layoffs reflect the banking sector’s efforts to restructure the mortgage side of their businesses to keep up with market realities.
The rise in interest rates and an increased competition within the sector continues to put pressure on the lending business.
You might want to fix your types of equity chart. It clearly shows a speculative mania peaking in 2007, but there’s also another speculative mania after that.
Isn’t that the cycle? Mania after mania?
I hope we don’t see another one, but I have my doubts. Buyers certainly haven’t learned anything from the previous busts — other than perhaps they now know they will be bailed out if it happens again.
Nothing much has changed except for the elimination of some of the worst loan products. Option ARM’s and IO’s allowed the bubble to become enormous, but the mania started even before these products saw widespread use. As long as “affordability products” exist in any form, you’ll always have the necessary ingredients for another boom/bust cycle. At the moment FHA is the affordability product of choice, but if rates reduce affordability it will be the catalyst for more innovative products/programs that Dodd-Frank didn’t see coming.
MR,
I know at one time you wanted to refi….maybe the opportunity is coming back.
The banks are going to have to rehire all those people.
Yes, I’m watching things closely. I’d like to shave 12 years off my term and get into a 15 year fixed without raising my payment by too much. That way if we decide to move it can still function as a cashflow neutral rental.
Soylent Green is People calls it an endless game of Whack-a-Mole. The pressure to “innovate” and create a new loan product to cause bubbles and bank losses is neverending. These new products all work at first because borrowers make initial payments, and appreciation caused by the introduction of new products disguises the losses, but over time, the problems come to the forefront, and we have a new cycle.
We’ve been in our 3% 15-year FHA refi for nine months now. I’ve thought about offering its assumption as a feature of our sale to prospective buyers, even though it’s very unlikely our buyer wants and/or can afford a 15-year payment.
The FHA reimburses a prorated portion of the UFMIP too when the loan is paid-off quickly. So I’d like to get some of that back too. I’m interested to see how much of it is returned.
10Y’s yields down into the mid 2.6’s today…we may be pushing into 4% 30 year rates before we see 5%.
Yes, I think you are right. I think there was this whole Taper Head fake. The Federal Reserve won’t Taper, unless they can keep 10 year US Treasury rates under 3%. That seems to be the pain mark.
Bernanke has been saying fairly clearly that they are looking for a 6.5% unemployment rate before they start decreasing the stimulus. It doesn’t seem like much of a head fake or anything else. It doesn’t sound like he is looking for the 10 year to fall under 3%. It looks like he is looking for unemployment to be 6.5%.
My guess is that if folks listened to what Bernenke said and did not listen to anybody’s, (especially the MSM), interpretation of what he said, folks would have a fairly clear idea of when Bernenke was going to decrease the stimulus. Yada yada yada 6.5% yada yada yada.
Why is everyone trying to make it so difficult?
Say he gets to 6.5%. Once he backs off, unemployment will rise again, assuming the numbers are not manipulated, and printing will commence.
Lap Band economics. We’re just taking the easy route to recovery=)
Enough money can be printed to reach full employment. Germany did it.
I hear the unemployment rate in Zimbabwe is the envy of the world.
Which only points out the temporary nature of “recovery” created by money printing. We need full taper in order to correct the imbalance.
I bet a Zimbabwe fourplex sells for a premium.
USA chimps will one day learn what hard money is –
How right you are. Their unemployment soared from 70% to 94% after hyperinflation according to UN estimates.
“Enough money can be printed to reach full employment.” -matt138
zerohedge @zerohedge 5m
U.S. 30-YEAR MORTGAGE RATE FALLS TO 4.17 PERCENT, ZILLOW SAYS. All cash buyers everywhere rejoice
Japan style perpetual 0% rates, here we come…
Don’t be so sure. Nothing has changed. The federal reserve will eventually taper its purchases, and we will have another interest rate spike to rival the last one. Wise sellers will take this opportunity to reduce their exposure.
HOA super-lien threat grows
Homeowners associations can pose a danger to mortgage servicer and investors. They are great for homeowners, but represent a danger to those involved in mortgage finance, especially in the so-called super-lien states.
These states grant executive authority to HOAs. In the case of errand dues, the homeowners association can fast track the foreclosure past the mortgage serviciers loss mitigation process.
Basically in super-lien states, the HOA holds all the cards when dealing with distressed debts. According to Sperlonga, a data and analytics firm which spent the last 18 months creating industry’s largest database featuring HOAs, more states are looking to upgrade to super lien status.
HousingWire teamed up with Jason Tufaro, Sperlonga’s vice president of business development and put together this free webinar outlining the risk.
I open the webinar with a personal anecdote of avoiding HOAs where possible when buying a home. Of course, investors in MBS aren’t always as lucky. for example, one in five homes have an HOA, but which ones?
Add on to that the fact that 80% of new construction is associated with an HOA, suddenly the webinar is a huge, mortgage industry eye-opener.