Neat Loans Will Give You a $500 Discount on Your Mortgage If You Got the COVID-19 Vaccine

This appears to be a first – digital mortgage lender Neat Loans will provide applicants with a $500 discount if they’re vaccinated for COVID-19.

The Boulder, Colorado-based company believes they are the first mortgage lender, and indeed financial services company, to offer a discount for getting the COVID-19 vaccine.

At a time when cases are surging again in many parts of the country following a bit of a lull, it appears they’re putting safety first.

Of course, this move will probably come with its share of controversy as well, like all things COVID do.

As to why they’re doing this, Neat Capital CEO Luke Johnson said, “Mortgage lenders need to have important conversations with their clients about the home-buying process and their vaccine status as it relates to employment.”

Adding that responsible companies have required their employees to get vaccinated to keep workplaces safe, and without a job, it’s tough to get a home loan.

Vaccinated Customers Will Receive a $500 Lender Credit from Neat Loans

Specifically, Neat Loans will provide a $500 lender credit to borrowers if they provide proof of COVID-19 vaccination.

Borrowers may use any digital or electronic picture of a vaccine record to satisfy the requirement. So you can probably take a photo of a paper copy and upload it as well.

It doesn’t matter which vaccine manufacturer you went with, such as J&J, Pfizer, or Moderna, or the number of doses received.

This offer is available to both those purchasing a home and those who apply for a mortgage refinance.

However, the mortgage loan application must be received on or after August 13th, 2021, and the promotion can come to an end at any time.

The company will also provide the same $500 credit to unvaccinated applicants who declare they’re unable to be vaccinated due to health or religious reasons.

And if you weren’t able to get the shot due to healthcare accessibility, cost, childcare availability, or transportation costs, Neat will ensure free vaccine access so borrowers can receive this promotional credit.

But you’ll need to submit a loan application with Neat first to have those costs covered.

Lastly, not all customers need to be vaccinated in order to apply with Neat Loans, to ensure equal access among all individuals. So you can still get a mortgage from them, just without the lender credit.

Neat Loans Provides Real-Time Mortgage Underwriting

This bonus credit aside, Neat Loans says you can get pre-approved for a mortgage in just three minutes, and make cash-like offers in just 48 hours once you receive an official approval.

They’ll even back up their so-called “Platinum Certified” approval for up to $50,000 of your earnest money (5% of the purchase price) if the deal falls through due to financing.

Neat claims to provide “real-time underwriting” designed to close loans 3X faster than the industry average.

And you can even earn $100 to upload required documentation in the first 24 hours, which will all be neatly listed for your convenience.

Another perk to Neat is the fact that their mortgage rates are openly displayed on their website, without the need to sign up first to view them.

They also provide handy estimates of required income and assets you’ll need to qualify for certain loan amounts and loan programs.

Their goal is to provide a “mortgage without the mess,” and close loans quicker with more transparency.

Props to them for having the courage to reward those who are taking their own health seriously and protecting their communities in the process.

At the moment, Neat Loans is only licensed to lend in five states, including California, Colorado, Connecticut, Texas, and Washington.

(photo: Marco Verch, CC)

Source: thetruthaboutmortgage.com

Is the Housing Market Finally Slowing Down? Not So Fast…

It’s a question a lot of prospective home buyers are asking right now. When will the housing market slow down? When will the bidding wars end and prices fall back to earth?

After an unprecedented year of home price gains, which somehow took place during a global pandemic, would-be buyers are looking for a reprieve.

But is it finally here, or is this just another seasonal fakeout?

It Has Been Very Much a Seller’s Market in 2021

home-sale prices

  • The median home-sale price increased 17% year-over-year to a record high $361,973
  • Asking prices of newly listed homes are up 10% from the same time a year ago
  • Half of homes had an accepted offer within the first two weeks of being on the market
  • 52% of homes sold above their list price, up from just 30% a year earlier

First, the bad news, assuming you don’t own yet. Home prices continue to be on a tear, with the median home-sale price rising 17% year-over-year for the week ending August 15th, per Redfin.

That pushed home prices up to an all-time high of $361,973, and was a much more pronounced climb than what we saw in previous years.

Part of that can be attributed to the COVID-inspired home buying frenzy, while the other underlying drivers have been constant for a while now.

There continues to be a supply glut, with too many buyers and not enough homes. Home builders have yet to catch up and don’t appear to be close to doing so.

At the same time, mortgage rates remain at/near record lows, creating even more demand.

When you throw in the need for more space due to stay-at-home orders, you wind up with the perfect storm.

This has made it very much a seller’s market in 2021, just as it has been in years prior. Ultimately, COVID just exacerbated an already dire situation.

Bidding Wars Fading, Home Sellers Slashing Prices?

bidding wars drop

Now the “good news” for potential home buyers, with a major caveat.

Both bidding wars and listing prices have been falling of late, which could signal an end to the overheated housing market.

Redfin noted that just 60.1% of offers written by their own agents faced competition from other buyers in July.

That was down from a revised rate of 66.5% in June and well below the pandemic peak of 74.1% in April.

However, despite July’s bidding-war rate being the lowest since January, it still exceeded the 57.9% bidding war rate seen in July 2020.

So though it appears as if things are moving in the right direction, they may in fact just be seasonal.

Meanwhile, the average share of homes with price cuts surpassed 5% during the four-week period ending August 15th, its highest level since the four-week period ending October 10th, 2019.

Here’s the problem. It’s all just relative to what has been an incredible period for home prices.

In other words, sure, the gains are moderating, but things like sale-to-list ratios are still above year-ago levels.

It really just tells us that home price appreciation is decelerating, not going away.

And to make matters worse, this can all be attributed to seasonal home price patterns.

Seasonal Patterns May Make It Feel Like the End of the Boom, Again

price drops

If you’ve been watching your local housing market, you might be hopeful that we’re returning to a period of normalcy. But don’t get your hopes up.

It’s normal for the housing market to cool off in fall and winter. It’s normal for homes to sit longer on the market as kids get back in school.

Each year, as we approach the end of summer and school gets back in session, the housing market tends to slow down.

This is a typical seasonal pattern that repeats itself each and every year, after the traditionally robust spring home buying season.

In short, April and May are the hottest months, then there’s an expected waning in home buying activity.

It’s usually accompanied by lower asking (and selling) prices, price reductions, fewer bidding wars, and more time on market.

While we are seeing some of that, you still need to keep it in perspective. Home prices and bidding wars are only lower relative to the incredible numbers recorded over the past year.

Imagine Tesla stock trading at only $700 versus its $900 all-time high. Sure, it’s lower than it was, but still up something like 1,500% over the past five years.

With regard to home prices, they’re still achieving new highs. The only thing that might be trending down is the pace of appreciation.

And here’s the worse news – expect the housing market to heat up once again in spring 2022.

Read more: When will the housing market crash?

Source: thetruthaboutmortgage.com

Jim Cramer Thinks the Super Low Mortgage Rates Are Going Bye Bye

The other day, Jim Cramer was talking mortgage rates, even though he’s a self-described “stock person.”

The backdrop was the better than expected jobs report, which jolted the bond market and sent mortgage rates higher.

In short, more jobs and less unemployment equates to a recovering economy, which ushers in inflation and forces the Fed to act (aka raise rates). Mortgage rates typically follow.

Cramer’s main message to The Street’s Jeff Marks was that banks are probably going to start increasing rates, and if you don’t have a cheap mortgage, you better get one fast.

Cramer Believes You Need to Act Now on Mortgage Rates

If you’re not currently the owner of a super cheap mortgage, you better get going on that. At least, that’s what Jim seems to think.

He told The Street that, “I feel strongly that this is it, the train’s leaving the station on mortgage rates.”

In other words, this ultra-low rate environment we’ve all been enjoying could be wrapping up sooner rather than later. And not returning anytime soon, or ever.

Cramer even went as far as to say that if you don’t have a mortgage at all, but own free-and-clear property, you should take out a mortgage.

What! Take on more debt just for the fun of it, while everyone else is rushing to pay off the mortgage early? More on that in a moment.

With regard to his call that the low mortgage rates are gone forever, I’m not so sure.

As I mentioned in an earlier post, I think there are still a lot of lingering issues both for the economy and COVID.

I don’t expect this fall to be a walk in the park, and thus I expect mortgage rates to stay low longer than expected.

That isn’t to say you should sit and wait for better, but you might have a bit more time than Cramer thinks. But it seems COVID is calling the shots, not inflation.

He Just Took Out a 20-Year Fixed Mortgage on a Property He Owned Free and Clear

Now back to Cramer’s message about taking out a mortgage even if your home is completely paid off.

It might sound crazy, but his logic is pretty sound here – borrowing against your home is very attractive at the moment because interest rates are hovering around record lows.

The man isn’t just telling you to go do it, he actually put his money where his mouth is and took out a new home loan himself.

Apparently, he owned a property free and clear and decided to borrow against it, using a 20-year fixed set at a low 3.25%.

That’s actually not that impressive to be honest, though if it’s an investment property then it’s a slightly different story.

Anyway, his point is that you can lock in a really low interest rate for the next 20 or 30 years and invest your money in the higher-yielding stock market.

He threw out PepsiCo stock as an example, figuring it would beat the 3.25% annual rate of return on his mortgage.

For the record, it’s returned something like 12% annually for the past decade, though the Nasdaq has performed even better.

Regardless, I mostly agree with this philosophy, though I don’t know if I’d go as far as to recommend taking out a new mortgage if you don’t have one.

Simply put, you get to borrow cheap money and invest it for much higher returns in the stock market, hopefully.

You just have to be disciplined and actually do that, as opposed to taking out a mortgage (cash out refinance), thinking you’re rich, and buying a Tesla with the proceeds.

One last funny fact to put a bow on this. It was only four months ago that Cramer paid off his mortgage with bitcoin gains.

So he paid off a mortgage and months later took out a new one.

(photo: Phil Leitch)

Source: thetruthaboutmortgage.com

Mortgage Rates Not as Low as They Could Be

A new Fed study and associated workshop revealed that mortgage lenders continue to offer inflated mortgage rates to consumers, despite ongoing efforts to reduce such borrowing costs.

Over the past several years, the Fed has pledged to purchase billions in mortgage-backed securities (MBS) in an effort to lower consumer mortgage rates.

The plan seems to have worked so far, pushing 30-year fixed mortgage rates from the five-percentage range to around 3.3% today.

However, Federal Reserve Bank of New York researchers Andreas Fuster and David Lucca argue that rates should be even lower.

In fact, the 30-year fixed could be closer to 2.6% if the yield declines in MBS were fully passed on to consumers.

Fat chance.

Lender Profits Clearly Rising

profits

While it’s open for debate, it’s clear that lender profits have risen substantially in recent years, largely because of the widening spread between yields on MBS and primary mortgage rates.

During 2007, this primary-secondary spread was around 45 basis points, but has since risen 70 bps to about 115 bps.

spread

Some of the participants in the workshop attributed the disparity to higher guarantee fees (which are passed on to consumers), costs associated with putback risk (repurchasing bad loans), a decline in the value of mortgage servicing rights, and so on.

But if you look at the mortgage banker profit survey from the Mortgage Bankers Association, the average profit on home loans originated in the third quarter of 2012 was $2,465, up from $1,423 two years earlier.

Profits have nearly doubled in just two years, at a time when banks and lenders have made it appear as if mortgages are no longer cash cows.

Why Won’t They Lower Mortgage Rates More?

You’d think that with profits so high, more competitors would enter the space and offer even lower rates to snag valuable market share. Or that existing lenders would battle one another and force rates lower.

Unfortunately, this hasn’t been the case. It seems as if a smaller group of large players essentially control the market.

Just look at Wells Fargo’s share of the mortgage market, which is now more than a third of total volume.

So why are things different this time around? Well, the researchers argue that lenders are increasingly uncertain about the future.

After all, this is an unprecedented time, and the recent mortgage boom could easily go bust at the drop of a hat, or perhaps at the sight of a fiscal cliff.

It’s no secret that loan origination volume is slated to fall tremendously next year, with refinances expected to slide from $1.2 trillion this year to $785 billion in 2013.

And new market entrants would probably think twice about jumping in if business is expected to slow that dramatically.

If things aren’t expected to last, taking larger profits now makes more sense, even if consumers get the short end of the stick.

Additionally, with mortgage rates already at historic lows, why go lower? I’m sure lenders are sitting back and saying, “Hey, these borrowers are already getting ridiculously low rates.”

And if all banks and lenders are in agreement, they can hold rates a bit higher than they otherwise should be.

At the same time, borrowers are probably satisfied with the rates currently available, meaning they shop less and lenders don’t have to worry about being priced out of the market.

There’s also the thought that it takes time for rates to fall on the consumer-end, as lenders get more and more comfortable with offering such a low rate.

Conversely, lenders will raise rates the second they fear they’re too low to avoid getting burned themselves.

But a more innocent explanation is simply that offering rates too low could overwhelm the banks.

Mortgage volume is already high, and staff is probably still relatively thin thanks to the recent crisis, so lowering rates more would grind things to a halt.

A lack of third-party originators, including mortgage brokers and correspondent lenders, has added to these capacity concerns.

How Low Will They Go?

The researchers summed things up by remarking that mortgage rates probably won’t fall to 2.6% in part because of the higher guarantee fees charged by Fannie Mae and Freddie Mac.

Of course, those guarantee fees should only reflect about a .25% increase in rate for the consumer. As for the remaining .50%, they argued that easing capacity constraints and thereby reducing existing lenders’ pricing power could push rates closer to a more modest 3%.

This could be accomplished by lowering net worth requirements to allow more market participants, extending rep and warranty reliefs to different servicers for streamline refinance programs, such as HARP II, and making more loans already owned by Fannie and Freddie eligible for such programs.

Ironically, the GSEs raised guarantee fees to encourage more private capital in the mortgage market, but instead it appears as if the same banks are just retaining more of the profits.

Source: thetruthaboutmortgage.com

Thursday Is the Best Day to List Your House

Not that it matters much these days, but apparently Thursday is the best day to list your home for sale.

This is the latest advice from iBuyer and home valuation company Zillow, which noted that 21% of properties are listed on that particular day of the week.

What’s So Great About a Thursday Anyway?

  • Roughly 21% of properties are listed for sale on Thursdays (the most of any other day)
  • The share of homes listed on Thursdays is as high as a third in some markets nationwide (Portland, Seattle)
  • Properties listed on a Thursday typically go pending faster than homes listed on any other day of the week
  • And homes listed on Thursdays are more likely to sell above their asking price

I like Thursdays – ever since college it’s been the unofficial start of the weekend, something I didn’t grasp until, well, college.

Fridays are generally the lighter work days (or school days), with most of the heavy lifting completed earlier in the week.

The other special thing about a Thursday, at least when it comes to real estate, is that open houses and private showings often take place on the weekend, when folks aren’t working.

So if a property is listed just a day or two before, there’s a good chance it’ll be seen very shortly after, as opposed to sitting on the market all week before the prospective buyers start showing up.

Conversely, if you put your property on the market on say a Sunday, for some bizarre reason, it might not get a showing until five or six days later.

By then, it could be seen as a stale listing, at least in today’s lightning fast housing market.

And considering the average time a property spent on the market in April was exactly one week (yes, seven days), a day or two more can be meaningful.

Per Zillow, 21% of homes are listed on a Thursday, with a rate around 33% in Portland and Seattle.

Meanwhile, just 13% of homes are listed on a weekend, which is lower than any individual weekday.

[The Best Time to Buy a Home Is in August and September]

Also List Your Home Before Labor Day If Possible

  • Listing during the week of April 22nd resulted in the best chance of selling above asking
  • The worst weeks of the year to sell recently were in mid- and late October
  • Homes sold the slowest during the week ending September 1st (Labor Day 2019)
  • Early-mid fall is the time when homes tend to sit on the market the longest

While day of the week can play a role, especially if the housing market isn’t bananas, the time of year is probably a lot more important.

Generally speaking, Labor Day tends to represent the end to the traditional home shopping season, which begins in spring.

This is mostly a weather-driven phenomenon, largely because it’s difficult to sell a home during a cold winter when it’s snowing outside.

But in areas of the country where the temperature is nice year-round, it may not be much of a factor.

For example, you might be able to get away with listing a home in Southern California or Florida at any time throughout the year without a noticeable difference in demand and/or sales price.

However, to maximize your chances of a high selling price, list on a Thursday before Labor Day.

As you can see from the chart below, properties sold faster and were more likely to go above list in April for the metro of Los Angeles, based on pre-pandemic 2019 data.

time of year home sale

The same held true in many other markets, while late summer and fall tend to perform the worst.

This is typically because families are settled for the school year, assuming they have children, and other prospective buyers might be traveling and/or beginning to hunker down for winter.

In fact, Zillow even refers to that time of year as the “fall stall,” when days on market rise and asking prices fall.

Forget About Dates, Focus on the Details

  • Dates can certainly play a role in real estate but aren’t the be all, end all
  • Sellers can see success any time of year if they do their homework and use a good agent
  • A home sale can also fall flat during peak selling months if the listing and/or agent is poor
  • And it may not always be convenient to sell at a certain time of year anyway

While “best” days and months of the year are interesting and fun to read about it, perhaps more important is listing your property with care.

That means selecting a competent real estate agent, making necessary repairs ahead of time, staging your property using the latest trends, and even ordering a home inspection for yourself before a buyer does.

All of these things can easily eclipse the value of a specific list date, whether it’s a Monday or a Thursday, an April or an October.

If you don’t take the time to do your homework, clean and stage your home, address any red flags, and so on, it might not matter what day or month you list.

Sure, Sunday is the worst day to list for a quick sale, with properties remaining on the market a full eight days longer than homes listed on a Thursday.

And homes listed on a Sunday (and Saturday for that matter) were less likely to sell above ask. Fortunately, this issue can probably be easily remedied, but not the time of year if life has its say.

Ultimately, understand that there are better and worse times to sell a home throughout the year depending on your individual market, but if you can’t time it perfectly, at least get all the other details right.

Read more: 12 Home Selling Tips for 2021

Source: thetruthaboutmortgage.com

Nation’s Top Wholesale Mortgage Lender Launches New Line of Adjustable-Rate Mortgages

Posted on May 13th, 2021

Declaring that ARMs are back, United Wholesale Mortgage (UWM) has just rolled out a new line of adjustable-rate mortgages for its mortgage broker partners.

The new offering from the nation’s largest wholesale mortgage lender includes a 5-, 7-, and 10-year ARM to flank the usual fixed-rate options, such as the very popular 30-year fixed and the shorter-term 15-year fixed.

What makes these loans interesting is the fact that they come with significantly better pricing than fixed-rate mortgages currently available with other lenders.

And that might be enough to change the ARM argument, which has been decidedly dour for years now thanks to record low fixed mortgage rates.

How Long Will You Actually Keep Your Home Loan?

  • Something like 90% of purchase mortgages are 30-year fixed loans
  • And roughly 80% of all mortgages including refinances are 30-year fixed loans
  • Yet less than 10% of borrowers actually keep their home loan for more than seven years
  • This means the bulk of homeowners with a mortgage are overpaying for the perceived safety of a fixed interest rate

UWM aptly points out that fewer than 10% of borrowers stay in the same mortgage for more than seven years, yet something like 80% of mortgagors hold 30-year fixed mortgages.

In other words, a large majority are paying too much for their home loan, yet never actually receiving the benefit of an interest rate that is fixed for the life of the loan.

And because many adjustable-rate mortgages come with a lengthy initial fixed-rate period, many of these homeowners could actually benefit from an ARM without ever worrying about a rate adjustment.

UWM notes that pricing on its 7-year ARM could be anywhere from 50 to 75 basis points (.50%-0.75%) better than a 30-year fixed loan.

For example, if a 30-year fixed is priced at 3%, it might be possible to get a 7-year ARM for 2.25%.

If we’re talking about a $350,000 loan amount, that’s a payment difference of about $140 per month and roughly $18,000 in interest saved over 84 months.

That’s the draw of an ARM – to save you money while also providing a lower monthly payment while you hold the thing.

And if you get rid of it during the fixed-rate period, which in the case of these loans is 5, 7, or 10 years, you essentially win.

Are ARMs Set to Get Popular Again?

  • Adjustable-rate mortgages have mostly been a home loan choice for the very rich lately
  • The ARM share was just 3.8% of total mortgage applications last week per the MBA
  • That may begin to change as mortgage rates rise and lenders embrace ARMs again
  • UWM has been a leader in mortgage innovation so this could be a sign of things to come in the industry

Chances are ARMs will gain in popularity as fixed rates begin to rise, assuming that happens over the next few years.

They may appeal to both new home buyers who want a lower interest rate, and existing homeowners who want to tap equity via a cash out refinance.

The adjustable-rate mortgage was super popular during the housing boom in the early 2000s, though they often featured extra-risky options like interest-only payments and negative amortization.

While an ARM is still a risk to some degree, given you don’t really know where interest rates will be at first adjustment, those who do have a clear vision can benefit, as illustrated above.

UWM’s suite of ARMs are all tied to the newly-launched Secured Overnight Financing Rate, otherwise known as SOFR, the LIBOR’s replacement.

Additionally, they all adjust every six months once they become adjustable, meaning they are 5/6, 7/6, and 10/6 ARMs.

This can be slightly more stressful than an annually adjusting ARM, such as the popular 5/1 ARM or 7/1 ARM.

The good news is the cap at each adjustment is just 1%, meaning the interest rate can’t increase by any more than one percent every six months.

And remember, the first adjustments don’t start for 60, 84, or 120 months, respectively, which as UWM noted, shouldn’t affect many homeowners who either sell their homes or refinance before that time.

The new ARMs are available on primary, second, and investment properties, for purchases, rate and term refinances, and cash out refis.

They are conventional loans (backed by Fannie Mae or Freddie Mac) and a minimum FICO score of 640 is required, with a maximum loan-to-value (LTV) ratio of 95% is permitted.

UWM has been a bit of a vanguard in the mortgage space, so there’s a good chance other mortgage lenders will soon follow suit and begin offering ARMs at a discount to their fixed-rate counterparts.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

New Fannie/Freddie Refinance Option Drops Adverse Market Fee, Offers $500 Appraisal Credit

Posted on April 28th, 2021

In an effort to undo some of the damage the Federal Housing Finance Agency (FHFA) basically caused itself, it’s throwing a bone to so-called low-income families to save on their mortgage.

It all spurs from the adverse market fee the very same agency implemented back in August 2020 to contend with heightened losses related to COVID-19 forbearance and loss mitigation.

The 50-basis point fee, which went into effect on September 1st, 2020, applies to all new refinance loans backed by Fannie Mae and Freddie Mac.

While it’s not a .50% increase in mortgage rate, the fee does get passed along to consumers in the form of either higher closing costs or a slightly higher mortgage rate, perhaps an .125% increase all told.

Either way, it wasn’t well received at the time, and still isn’t today, and this announcement is a somewhat bittersweet one, as it only applies to a certain subset of the population.

Still, the FHFA believes families who are eligible for this new refinance initiative could see monthly savings between $100 and $250 on average.

Who Is Eligible for Adverse Market Fee Waiver and Appraisal Credit?

  • Applies to homeowners with incomes at or below 80% of the area median income and loan amounts at/below $300,000
  • Must result in savings of at least $50 in monthly mortgage payment, and at least a 50-basis point reduction in interest rate
  • Must currently hold an agency-backed mortgage (Fannie Mae or Freddie Mac)
  • Property must be a 1-unit single-family that is owner-occupied
  • Borrower must be current on their mortgage (no missed payments in past 6 months, 1 allowed in past 12 months)
  • Max LTV is 97%, max DTI is 65%, and minimum FICO score is 620

Perhaps the biggest eligibility factor is the borrower’s income must be at or below 80% of the area median income.

This new refinance program specifically targets what the FHFA refers to as low-income families, which director Mark Calabria said didn’t take advantage of the record low mortgage rates.

Apparently more than two million of these homeowners did not bother refinancing, even though it would have been advantageous to do so (and still is).

He noted that this new refinance option was designed to help eligible borrowers who have not already refinanced save somewhere between $1,200 and $3,000 annually on their mortgage payments.

That’s actually a requirement as well – the borrower must save at least $50 per month in mortgage payment, and their mortgage rate must be at least .50% lower.

For example, if your current mortgage rate is 4%, you’ll need a rate of at least 3.5% to qualify.

Additionally, you must currently have a home loan backed by either Fannie Mae or Freddie Mac, and your property must be owner-occupied and no more than one unit.

I assume condos/townhomes work as well, as long as it’s your primary residence.

The adverse market fee is waived as long as your income is at/below 80% of the area median AND your loan balance is at/below $300,000.

If your loan amount happens to be higher, my understanding is you can still get the $500 appraisal credit.

You’ve also got to be current on your mortgage, meaning no missed payments in past six months, and up to one missed payment in past 12 months.

Lastly, there is a maximum loan-to-value ratio of 97%, a max debt-to-income ratio of 65%, and a minimum FICO score is 620.

Most borrowers should have no issue with those requirements as they are extremely liberal.

Is This New Refinance Option a Good Deal for Homeowners?

  • It’s an excellent deal for those who haven’t refinanced their mortgages yet
  • You get a slightly lower mortgage rate and/or reduced closing costs
  • And with mortgage rates already super cheap it could be a double-win to save you some money
  • Even though who don’t qualify for this new program should check to see if a refinance could be worthwhile

As Calabria said, many higher-income homeowners probably already refinanced, or are currently refinancing their mortgages to take advantage of the low rates on offer.

Meanwhile, lots of lower income borrowers haven’t for one reason or another, perhaps because they’re not aware of the potential savings or had a bad experience with a mortgage lender in the past.

Whatever the reason, those who haven’t yet and meet the income requirement can take advantage of a refinance without the pesky adverse market fee.

That means they could get a mortgage rate maybe .125% lower than other borrowers who aren’t eligible for this program.

Additionally, they’ll get a $500 home appraisal credit from the lender, assuming the transaction doesn’t already qualify for an appraisal waiver.

Either way, eligible homeowners won’t have to pay for the appraisal, which is another plus to save on the refinance itself via lower closing costs.

It’s actually a great deal for those who haven’t refinanced yet because you might wind up with an even lower mortgage rate and reduced closing costs.

And because your new mortgage payment must be at least $50 cheaper per month, there’s less likelihood of it being a meaningless refinance.

All in all, this is good news for the so-called low-income homeowners who’ve yet to refinance, but bittersweet for everyone else.

Still, mortgage rates remain very attractive for everyone, so even if you have to pay the adverse market fee (and the appraisal fee), it could be well worth your while.

The FHFA said the new refinance option will be available to eligible borrowers beginning this summer, though it’s unclear exactly what date that is as of now.

Read more: When to a refinance a mortgage.

Source: thetruthaboutmortgage.com

HAMP Gets Extended for Another Two Years

Today, the Treasury and U.S. Department of Housing and Urban Development (HUD) announced the much anticipated extension of the Home Affordable Modification Program (HAMP).

The program, which was originally launched in March 2009, was set to come to a close on December 31, 2013, but thanks to this most recent extension it will be open to homeowners until December 31, 2015.

Of course, one has to wonder who hasn’t taken advantage of the widely available loan modification program four years after its launch, but I digress.

1.1 Million Homeowners Have Received Assistance

HAMP default

Since HAMP was launched, more than 1.1 million struggling homeowners have received a permanent modification via the program.

The median monthly savings for borrowers is $546, or 38% of the previous mortgage payment, which is supposedly larger than the median savings with private loan mods, per OCC data.

The total amount saved equates to a whopping $19.1 billion, which ain’t too shabby.

However, more than two million trial modifications were started through HAMP since its inception, meaning nearly half of borrowers couldn’t even keep up with modified payments set to a front-end debt-to-income ratio of 31%.

Additionally, the default data on HAMP loans is pretty bad. If you take a look at the chart above, you’ll see that a good chunk of HAMP loans were either 60+ or 90+ days delinquent in seemingly no time at all.

Sure, the numbers have been getting better over time, but they’re still highly elevated, and one has to wonder if the improvement is more the result of the housing market’s resurgence than anything else.

For example, 41.5% of HAMP loan mods that became permanent in the third quarter of 2009 were 90+ days delinquent after three years.

Conversely, of the HAMP loan mods that went permanent in the third quarter of 2011, just 18.8% were 90+ days delinquent after 18 months.

So the default figures are trending lower, which is a positive for the program that has failed to live up to expectations from the get-go.

Part of that could have to do with an increase in principal reductions, seeing that borrowers will be more hopeful if they actually have a chance of getting above water.

Earlier HAMP loan mods were mainly interest rate reductions and/or mortgage term extensions, both of which didn’t seem to entice homeowners facing steep home price declines.

HARP the Real Winner

refinances

Another key component of the Making Home Affordable Program is HARP, the Home Affordable Refinance Program, which was also extended until 2015 last month.

Since April 2009, about 2.4 million homeowners have benefited from a mortgage rate reduction through the program. As you can see from the graph above, HAMP holds a small share of total refinance activity.

Most HARP homeowners hold underwater mortgages, some with loan-to-value ratios well north of 125%, which was the original LTV cutoff.

This program appears to be a lot more successful, seeing that borrowers can snag today’s ultra-low mortgage rates.

Additionally, HARP borrowers must be current on their mortgages, so the success rate is clearly going to be better than HAMP.

One has to remember that HAMP borrowers must have a financial hardship, so even if they default on the HAMP loan, it’s possibly a better alternative to a short sale or foreclosure.

Still, instead of focusing on HAMP, lawmakers may want to actively pursue an extension for HARP, that is, allowing newly originated mortgages to take part, as opposed to just those sold to Fannie and Freddie before May 31, 2009. HAMP has the same eligibility cutoff.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Why Is the Housing Market So Hot?

Real estate Q&A: “Why Is the Housing Market So Expensive Right Now?”

If you asked me this same question a few years ago, I would have had the same basic answer I’m about to explain.

And since that time, home prices have surged much, much higher, which basically tells me the same fundamentals have been at play for quite a while now.

Additionally, they may continue to more years to come.

Similar to a market downturn, when things are hot, they remain hot for years, which is why it can pay to hold on, just like those who didn’t sell their bitcoin at first-profit.

Reason #1: There Is Very Limited Inventory and Lots of Buyers

The top reason why the housing market is so high right now has to do with limited inventory, or supply.

It’s one of those fundamental concepts even a child can comprehend. When you have a small or finite amount of something, and people want it, its value goes up.

This is basically what’s been going on with real estate since the market bottomed in 2012.

In reality, supply has been tight ever since the market peaked and the foreclosure crisis took hold because banks were careful to flood the market.

Even back then, it was difficult to scoop up a property because many of them were either foreclosure sales, which aren’t for novice home buyers, or short sales, which took bank approval and months and months to close.

I remember looking at homes in 2012 and it wasn’t much different than today. Sure, home prices were significantly lower, but inventory wasn’t all that great.

Much of what was listed either needed work or wasn’t in the most desirable area. For me, that hasn’t changed over the past decade.

Yes, a good property comes on the market here and there, but if and when it did/does, it becomes a “hot home” and a bidding war ensues.

It’s for this main reason that home prices are at all-time highs nationwide, with the median home valued at roughly $273,000, up from $215,000 in early 2007, per Zillow.

Reason #2: Record Low Mortgage Rates

  • Despite a recent uptick mortgage rates are lower than they were a year ago
  • This has allowed purchasing power to stay strong while home prices rise
  • The only increased burden is a higher down payment for prospective buyers
  • It may remove some buyers from the picture but not enough to lower prices

Now if reason number one weren’t reason enough for real estate to be booming, sprinkle in some record low mortgage rates.

To get this straight, there’s a short supply of something people want and it’s on sale from a financing point of view. No wonder everyone is going wild.

While the listing price might be quite a bit higher than it was five or 10 years ago, the fact that mortgage rates are roughly half the price they were then is huge.

This has kept home purchasing power intact despite a big run-up in home prices, basically only making the required down payment an issue for some prospective buyers.

And remember, because there’s a limited supply of homes available, it doesn’t really matter if some would-be buyers are shut out of the market due to affordability constraints.

There are still enough willing and able buyers to come in and pick up any slack, of which there isn’t much of to begin with.

So the bidding war might only have 20 participants instead of 30 – that’s not going to make any impact whatsoever on the final sales price.

Reason #3: Rising Incomes and Inflation

home price affordability

Lastly, we can’t simply look at unadjusted (nominal) home prices and say whoa, they’re even higher than they were back in 2006 when real estate was in a massive bubble. They must crash!

Yes, unadjusted home prices are about 22.2% above the peak seen in 2006 when the housing market last boomed, per First American (see the blue line above).

But that alone isn’t enough to determine whether the market is overvalued or not.

Ultimately, you have to factor in inflation, mortgage rates, and wages to get a complete picture.

Speaking of wages, median household income rose 6.2% year-over-year in January and is up 74.8% since January 2000.

Meanwhile, real house prices (those adjusted for inflation) were about 25.6% less expensive to begin the year than in January 2000.

And so-called “house-buying power-adjusted house prices” are still 47.8% below their 2006 housing boom peak, meaning rather incredibly, there’s still a lot of room to run.

Just check out the chart above – from October 1993 to December 1994, nominal home prices barely budged one percent, but the Real House Price Index (RHPI green line) increased over 20% because purchasing power decreased by 16% due to rising mortgage rates.

Then from January 2005 to March 2006, nominal house prices surged about 13% while mortgage rates remained mostly steady, pushing the RHPI up a big 15%.

At that time, affordability was eroded because nominal home price appreciation far outpaced purchasing power.

Finally, nominal home prices increased more than 13% year-over-year in January 2021, but house-buying power (yellow line) jumped 19% as the RHPI fell nearly five percent.

Why did housing affordability improve despite rising home prices? Because median household income increased and the 30-year fixed fell from 3.62% in January 2020 to 2.74% in January 2021, per Freddie Mac.

In other words, you can’t look at nominal home prices in a vacuum, aka firing up the Redfin app and saying OMG, that $500,000 home from last year is now selling for $600,000!

You need to consider the big picture and factor in wages and how cheap/expensive financing is.

If you look back at that chart, nominal home prices (blue line) have risen steadily since around 2012, and are now above the scary 2006 housing peak levels.

But the RHPI has reached its lowest point since the series got started in 1990, and at the same time the House-Buying Power Index has surged higher, especially recently.

All of this may explain why despite double-digit year-over-year gains and nominal home prices that might be up nearly 100% from 2006, the buyers are still coming. And they’re bidding over asking!

It also supports the idea that the next housing crash (or beginning of a decline) won’t happen for a while still, perhaps my longstanding prediction of 2024.

In other words, if you’re a prospective home buyer, don’t get your hopes up for a discount anytime soon, though if mortgage rates do rise, we might see a moderation in home price appreciation and perhaps less competition.

But the only real relief will come from increased home building, which is beginning to ramp up as housing starts and housing completions are both up significantly year-over-year.

As to how real estate could go from red hot to ice cold again, picture a scenario a few years out when home builders overshoot the mark and mortgage rates are back at 4-5% for a 30-year fixed.

Oh, and asking prices are up another 10-20% from today’s levels. That’s where you can start to imagine another major correction, especially if the wider economy hits another snag.

Read more: 2021 Home Buying Tips

Source: thetruthaboutmortgage.com

New Study Blames Cash Out Refis for Mortgage Crisis

A new study from Fed researcher Steven Laufer puts a lot of the mortgage crisis blame on cash out refinancing, which swelled in popularity as home prices increased in the early 2000s.

Of course, when home prices took a turn for the worse, many who extracted home equity paid the price by acquiring an underwater mortgage.

At this point, we all know homeowners relied on their homes as ATM machines during the housing run-up, but some of Laufer’s figures are pretty startling.

For example, when focusing on a sample of homeowners from Los Angeles, he found that nearly 40% who defaulted on their mortgages were earlier buyers who purchased their homes prior to 2004.

What’s interesting is that more than 90% of these defaulters would have had outstanding mortgage balances below their current home values had they not extracted home equity, which would have left little motivation to default.

But as we all know, scores of homeowners turned to second mortgages and home equity lines of credit to squeeze out every last drop of value in their homes, much to the delight of lenders and Wall Street investors.

As a result, even those who purchased homes at relatively cheap levels found themselves in negative equity positions, thanks to the loose lending guidelines that allowed cash out refinancing to 100% LTV or higher.

This explains why you’ll see a long-time homeowner selling their home short, even though they purchased it decades ago.

Had these homeowners not extracted home equity, many would have LTV ratios under 60%, and few would be underwater.

But these early buyers cashed out at a rate of approximately once every three years, ostensibly as home prices marched ever higher.

refi mix

Just take a look at this chart of the types of new mortgages originated during the 2000s for Laufer’s sample.

Rate and term refinances (no cash out) were popular until about 2004, at which point the product mix shifted to pretty much all cash out refinances and second mortgages.

Roughly one in 12 homeowners took out an additional mortgage or withdrew cash via refinancing each quarter from 2004 to 2007.

Late in the rally, cash out refinances became nearly non-existent because homeowners simply didn’t have the equity to extract.

Then came the rise of rate and term refinances again as borrowers looked to take advantage of the lower mortgage rates available, with many needing HARP to get the job done.

What If Homeowners Couldn’t Cash Out?

After highlighting the problem, Laufer presented a few scenarios that could have prevented some of the defaults.

If the max LTV ratio for cash out refinancing had been lowered to 80% (a rule that has been in place in Texas for years), he estimated that the amount of equity extracted would have fallen by 23%, and the default rate would have been 28% lower.

(He also presented a more extreme scenario that prohibited equity extraction entirely, which led to 80% fewer defaults among the early buyers he focused on.)

However, if homeowners were limited in their ability to tap equity to 80% LTV, home prices would also fall by an average of 14%, thanks to the reduced collateral value of housing.

This principle explains why home prices in Texas, where LTV limits are capped at 80% for cash out refinancing, aren’t nearly as extreme as the rest of the nation.

Their housing boom and bust was a lot more muted than say the booms seen in Phoenix and California, where the sky (and LTV) was the limit.

So essentially placing more stringent limits on equity extraction would take some of the speculation (investing, gambling, upside, downside) out of housing.

With less potential upside, fewer individuals would be interested in real estate, and home price movement would probably be pretty boring.

Still, Laufer noted that the welfare gain of such a restriction for new homeowners would be equivalent to 3.2% of consumption thanks to the lower prices at which they could purchase homes. In short, cheaper homes, smaller monthly mortgage payments.

But it’s a little too late to undo what’s already been done – the Fed has made the decision to prop up home prices via ultra-low mortgage rates, and there’s no turning back now.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com