Archive for Peter G. Miller
Immigration Reform Could Add $500 Billion In New Mortgages
A new study by the National Association of Hispanic Real Estate Professionals (NAHREP) estimates that immigration reform would create three million new home sales, $500 billion in additional mortgage originations, and $28 billion in new real estate commissions within five years of passage.
These are huge numbers, enough to pressure real estate prices higher because of increased demand and to create millions of hours of new work plus a wide range of additional factory orders.
“If we can get past the anti-immigrant sentiment that has so strongly colored the national conversation around immigration reform, we will see just how much our U.S. economy has to gain by legitimizing these people,” said Juan Martinez, NAHREP president.
Martinez said “foreign-born householders have a high value and strong desire for homeownership. They have been here in our midst for years, working and participating in our economy. Legitimizing them through immigration reforms would finally give them the access and the confidence to buy homes.”
NAHREP says passage of new immigration rules would create solid economic benefits in the housing sector was well as throughout the economy.
- Assuming past purchase trends among foreign-born householders remain consistent, half or up to 3 million of the 6 million undocumented immigrants that are expected to pursue legalization, will also buy a home once they have legal status;
- Many of the undocumented foreign-born householders have age and income characteristics associated with potential homeownership with household incomes of about $40,000;
- Up to 3 million undocumented foreign-born householders could potentially afford a home worth $173,600, the national median sales price of a home. This would generate more than $500 billion in new mortgages, and about $25 billion in mortgage origination and refinance income;
- Assuming an average of 5.5 percent in sales commissions for these home sales, these purchases would create $28 billion in income within the real estate community;
- Home purchases by 3 million legitimized immigrants would create $180 billion in additional consumer spending within local communities based on the average $60,000 in associated purchases estimated by the National Association of Realtors in 2012.
- *These estimates are factored over a five-year period.
“Immigration reform would unleash pent-up demand for homeownership by millions of undocumented immigrants. It would help re-establish homeownership as a driving force in building wealth and accelerate the recovery of the nation’s economy,” said Alejandro Becerra, a former senior housing fellow, researcher, author and recipient of the 2011 HOPE Award.
The Secret Group That Can’t Get A Mortgage
For all the complaints about getting a mortgage the reality is that the system is fairly simple: pick a lender, deliver 56 pounds of paperwork, and wait for an underwriter to approve the loan.
Last year millions of homes were financed and refinanced, many with record low mortgage rates. If the system was that broken then surely the number of new mortgages would’ve been far lower.
However, there is a big exception to the idea of relatively-easy access to the mortgage system. Some 10 million “unbanked” households do not have bank accounts, about one in 12. In addition, another 24 million households are “underbanked.” About one-third of all households have neither savings or checking accounts.
Such unbanked and underbanked households rely on what are called “alternative financial services” or AFS lending products such as high-cost non-bank money orders, non-bank check cashing services, non-bank remittances, payday loans, rent-to-own services, pawn shops, or refund anticipation loans (RALs).
You can see the impact of this situation with both mortgage applications and mortgage rates. Surely it is difficult to apply for mortgage if you must supply receipts and other documentation from check-cashing services, payday loans, pawnshops and rent-to-own services. Because of the higher costs represented by such alternative financial services users have fewer dollars that can be saved for a down payment or used to pay off other debt. If they have less credit quality they may have lower credit scores and thus face higher interest rates.
The use of non-bank services is a practical reality in every society. They represent a tangible cost of doing business without adequate credit or access to the formal banking system.
Big Banks and Mortgages
On one hand, the faster we can get people into the banking system the better. On the other hand, getting people into the banking system should not justify the high costs we often find with formal bank products such as credit cards and auto loans.
Big banks may balk at the idea of marketing to the unbanked because such accounts are likely to be less profitable than the business which can be done with companies, corporations and the middle class, but there are 34 million underbanked and unbanked households in the US — a big number. Getting even 10 percent into the financial system could make a great difference for borrowers in terms of the ability to get a mortgage, purchase a car or make the transactions which so many of us regard as normal and routine.
And there would be a wider benefit as well: With more people within the standard financial system there would be lower transaction costs for the now-unbanked and underbanked and therefore more money to buy things — something important when you consider that consumer purchases power the bulk of our economy.
HARP Mortgage Refinancing Program Extended Two Years
The government’s Home Affordable Refinance Program (HARP) will continue through December 31, 2015, according to the Treasury Department. Previously the program was scheduled to shut down at the end of this year.
Started in 2009 by the Obama administration, HARP is designed to help borrowers refinance to new and lower interest rates. So far, as of March 2013, the government reports that more than 1.1 million homeowners have received a permanent modification through HARP, with a median savings of $546 every month – or 38 percent of their previous payment.
The purpose of the HARP program is to help borrowers who are making their payments but cannot refinance because local home values have dropped and they have insufficient equity to refinance with a private lender. However, since they have been making their payments, the government considers such underwater borrowers good credit risks and will help them through HARP.
“The housing market is gaining steam, but many homeowners are still struggling,” said Treasury Secretary Jacob J. Lew. “Helping responsible homeowners avoid foreclosure is part of our wide-ranging efforts to strengthen the middle class, and Making Home Affordable offers homeowners some of the deepest and most dependable assistance available to prevent foreclosure. Extending the program for two years will benefit many additional families while maintaining clear standards and accountability for an important part of the mortgage industry.”
HARP is part of the federal Making Home Affordable program. Under HARP borrowers can qualify for new financing if:
- The mortgage is owned or guaranteed by Freddie Mac or Fannie Mae.
- The mortgage has been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- The mortgage was not refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
Notice the last requirement. Distressed borrowers seeking to refinance are sometimes advised to skip a payment to pressure the loan servicer into a mortgage modification. Wrong. By failing to make a payment the borrower will face a credit ding and not qualify for a HARP refinance for at least a year.
Duck Dynasty, Donald Trump And Real Estate
If you had to pick the most-interesting show on television it likely would not involve controversy, conflict or Kardashians. Instead, it’s A&E’s Duck Dynasty, a show which is as much about real estate as duck calls.
The story is that Phil Robertson was one of seven children who grew up in rural Louisiana. His father paid $20 a month — the “kinfolk price” — to rent a toilet-free log cabin and 20 acres. The family farmed, hunted and fished to make ends meet and ultimately Robertson went to college and became a quarterback at Louisiana Tech, starting in front of Terry Bradshaw, someone who went on to have one of the most-legendary careers in professional football.
Robertson turned down an opportunity to play football professionally because it would interfere with duck season and, as he explains in his book, Happy, Happy, Happy, “I couldn’t make much sense out of making a living from work that entailed large, violent men chasing me around — men who are paid for one reason: to run me down and stomp me into the dirt.”
Log Homes
While to some modern eyes log cabins and squirrel hunting may seem primitive and distant, it wasn’t so long ago that much of the population used outhouses. Census figures show that in 1940 nearly half of all US homes lacked indoor plumbing according to the New York Times.
Robertson went on to earn a bachelor’s and master’s degree in education and taught after college. But then drinking caught up with him. He threw Kay, his wife, and their three sons at that point, out of the house. Three months later he begged to take her back, found religion, stopped drinking and set in motion a plan to survive as a hunter and commercial fisherman.
Central to his plan was that he and Kay owned land on the Ouachita River near Cyprus Creek in West Monroe, LA. The property was bought with a down payment from his father and consists of four lots that total a little more than six acres. On the property are two homes, one of which is on a floodplain.
While Robertson survived as a hunter and fisherman, he also invented a new and better duck call. As with many successful businesses, what started at a dining room table evolved into an enterprise which in time had gross revenues of more than $1 million annually.
An interest in the business was then bought by his third son, Willie, and Willie’s wife, Korie. From that point forward the business grew to the point where today it occupies a 30,000 sq. ft. facility and Willie is the CEO.
“I call him Donald Trump II,” Phil explains, “because he’s a dealmaker….”
Frequently on the show one sees hunting on the “Robertson land,” the various rural properties acquired by Phil and Kay, as well as their house and the homes of Willie and another son, Jase. The sons’ homes are substantial, beautiful houses, a long way from the modest property above the Ouachita. But Phil teases because such homes are in a subdivision, a place for yuppies.
It’s easy to imagine that Duck Dynasty could devolve into little more than jokes about self-described “rednecks.” A local newsman, Griffin Scott, explains that at first “I have to confess, when I heard about Duck Dynasty I cringed at the thought of northeast Louisiana on reality TV.
“‘Hollywood is gonna make us look like a bunch of inbred, racist idiots,’” Scott told his wife.
A Hollywood Surprise
But A&E didn’t do that. Instead it has produced a show with functioning families, a show which is perhaps the funniest program on TV in a very long time. Duck Dynasty is populated with intelligent, educated people, and while I disagree with the politics Phil offers in his book, there is an essential decency which comes through.
The assorted Robertson men as well as their steadfast employees and friends largely have long hair, long beards and camouflage pants. They work at the family business, but just about any event is a cue to stop and do something else. And unlike other businesses, when they walk off the job no one is fired, at least for long.
For the family patriarch it’s not about getting more stuff. As Phil says in his book:
“Even before our success came along, we had air conditioning, color TV, hot water and a bathtub. We had everything we needed. When I was a boy we didn’t even have bathtubs or commodes.”
Duck Dynasty is really about our evolving culture, perspective and a time when work was part of what we do and not the sum of our biography. Like American Chopper, the program is compelling but with a far-more positive spin on family dynamics. It makes for interesting TV.
When Should A Real Estate Broker Be Paid?
Millions of homes are sold each year and the overwhelming majority are marketed through professional real estate brokers. It might seem as though real estate brokers are paid when they list and sell homes but technically that’s not quite the case, something which has created a stir in California and a controversy which is likely to spread nationwide.
A broker obtains the right to sell a home through what is called a “listing” agreement. Depending on the jurisdiction, that agreement can spell out various issues including the sale price of the property, how the broker will be compensated and the length of the contract.
However, the broker’s compensation is not actually tied to the sale of the property in most cases. Instead an agreement might say that a fee is earned, due and payable when “a buyer is procured who is ready, willing and able to buy the property at the price and on the terms stated herein, or on any other price and terms agreeable to sellers.”
For decades such language has been defined within the real estate community to mean that a commission is earned once a ready, willing, and able purchaser has been found who will offer to pay the listing price or lower price if that is acceptable to the property owner.
Broker Protection
In other words, it is possible for a broker to be entitled to commission upon the receipt of a full-price offer — even if the home is not actually sold. The logic is that if a broker has found a buyer who is willing to make an offer for property at the price set by an owner than the broker has done his or her job.
While it is understandable that brokers would want to be protected for the work that they do, the ready, willing and able concept raises some questions. For example, in the ethics classes that I teach I have had real estate licensees who have argued that they have no obligation to the owner once an offer has been accepted, meaning their job is done and they do not have to help get the property to closing. Others disagree.
Now, in California, this dispute has gone to an appeals court and the seller has won. The result, according to Bob Hunt at Realty Times, is that the California Association of Realtors has revised its standardized contract to say that a commission can only be earned when a home sale has actually closed.
In RealPro, Inc. v. Smith Residual Company, a court ruled that getting an offer at the full listing price is not enough to earn a commission because of the “or” in the listing agreement, the part about other terms and conditions that a seller might required.
“Notably absent from the listing agreement is language that allows for payment of any commissions simply upon the receipt of a full price offer,” said the court. It also raised four other points:
First, “a seller would not have the option to accept a higher offer on acceptable terms without still owing a commission to a broker who presented a concurrent unacceptable offer.”
Second, “a seller would be responsible to pay multiple commissions on all submitted full price offers, irrespective of the offers’ terms.”
Third, “a seller would be responsible to pay a broker’s commission if the purchaser breached before the sale was consummated simply because the broker had procured a buyer willing to purchase the property for the listing price.”
Fourth, “prospective buyer’s brokers would have no incentive to obtain purchase prices below the listing price because it would jeopardize the broker’s right to a commission.”
The California decision is likely to reverberate around the country. The idea of relating brokerage commissions to the actual sale of the property is certainly the intent of sellers and the new California language aligns the goals of brokers and sellers more closely, an idea which is likely to spread to other states.
Are More Foreclosures And New Construction Good For Home Prices?
A new study find that new construction and foreclosure activity are running neck-and-neck, with building permits and foreclosure both up 27 in the first quarter from a year ago.
The new numbers from RealtyTrac suggest that housing markets in many are areas are returning.
“Nationwide and in most markets it appears builders are planning to ramp up activity that will help offset a drop in foreclosure starts, but there are some markets where a jump in both building permits and foreclosure starts in the first quarter indicate the scales will tip more heavily in favor of supply of homes for sale in the coming months — both new homes and foreclosures,” said Daren Blomquist, vice president at RealtyTrac. “On the other extreme there are some markets where both building permits and foreclosure starts are down dramatically, indicating that there will be no reprieve from the shortage of homes for sale in those markets in the near future.”
The comparison between new construction and foreclosure activity is interesting because it may point to more housing supply than is generally believed to be available.
On one hand, new construction can plainly be seen as an addition to the housing stock. On the other, foreclosures do not necessarily imply fewer available homes — the houses themselves could be perfectly fine but distressed only in the sense of money and mortgages. Combine foreclosures and new home construction and the result in many communities could be a large stock of available properties. If it turns out that housing supply is greater than generally believed that the rise in home prices could slow, especially in overbuilt areas.
RealtyTrac also found:
- Nationwide single family building permits increased 27 percent from a year ago in the first quarter to the highest first-quarter total since 2008. Meanwhile U.S. foreclosure starts in the first quarter decreased 27 percent from a year ago to the lowest quarterly level since the second quarter of 2006.
- The majority of building permits in the first quarter were for single-family homes (64 percent of total permits), followed by 5+ unit multi-family properties (33 percent). Overall multi-family building permits increased 23 percent from a year ago.
- States with the most single family building permits in the first quarter were Texas, Florida, North Carolina, California and Georgia, all of which posted double-digit percentage increases from a year ago. All these top states also posted decreasing foreclosure starts from a year ago, although Florida foreclosure starts were down just 1 percent.
- States where both single family building permits and foreclosure starts increased from a year ago included Nevada, Washington, New Jersey, Maryland and New York.
- Cities with the most single family building permits in the first quarter were Houston, Oklahoma City, Austin, El Paso and Fort Worth. Of these top five, all except for Austin posted decreasing foreclosure starts during the same time period. Austin foreclosure starts increased 19 percent.
- Cities with the most foreclosure starts in the first quarter were Miami, Las Vegas, Chicago, Fort Lauderdale and Orlando, with Las Vegas, Fort Lauderdale and Orlando posting increases in foreclosure starts from a year ago. All five cities posted increases in single family building permits from a year ago.
- Cities where both single family building permits and foreclosure starts increased at least 10 percent from a year ago in the first quarter included Las Vegas, Seattle, Raleigh, N.C., Reno, Nevada, and Boca Raton, Fl.
- Cities where both single family building permits and foreclosure starts decreased from a year ago in the first quarter included San Antonio, Albuquerque, Fresno, Bakersfield (both in California) and Greensboro, N.C.
“We are currently experiencing a feeding frenzy in the Reno area for inventory. While the increase of foreclosures and building permits will bring some much-needed relief in the future it will unfortunately be far from a feast,” said Craig King, COO of Chase International brokerage covering the Lake Tahoe and Reno, Nevada markets. “We are particularly feeling the heat for properties under $350,000. Those properties are receiving multiple offers within days of hitting the market so the builder and foreclosure inventory will be a blessing but far from an answer to the inventory shortage here.”
“Listings in the Oklahoma City area are down dramatically from this time last year by 18 percent and home prices are climbing. The increase of building permits in the area is a welcomed sign that some relief is on the way in terms of inventory. However, even with the increase of REO’s coming onto the market it will not be enough to solve the inventory shortage here,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty in Oklahoma City and Tulsa. “With Boeing and Northrop Grumman moving into the area there is an increasing need to get these new single family homes completed and onto the market as quickly as possible.”
Will An Internet Sales Tax Save Shopping Malls?
You can think of it as the “shopping mall protection act” or maybe just a hint of marketplace fairness, legislation recently passed by the US Senate would require online retailers with revenues of more than $1 million to collect and pay sales taxes.
This is something very new in the history of the Internet, a recognition that the Internet marketplace is now real and no longer requires a sales tax advantage.
The subject of an Internet tax is fairly complex: Who pays the tax, the seller or the recipient? Must the seller be located in a given state, just the buyer or both?
In 1992, the Supreme Court decided in Quill Corp. v. North Dakota that the state could not collect a sales tax because Quill had no physical presence in the state. This was a great decision for mailers and cataloguers and in general but did not immediately mean much to Internet merchants because they had virtually no marketplace presence at the time.
Minimal Online Tax
The result of the Quill decision is that online retailers had the opportunity to grow with few worries about state taxes. The general rule was that as an Internet retailer you paid taxes in the state where you were physically located and if you were located somewhere overseas you likely paid nothing.
At first the tax-exempt status of online sales was not a big problem. Yes, state and local tax revenues were being lost but the numbers were tiny and a new business was being created. Over time, however, online shopping became more accepted meaning there was less growth for bricks-and-mortar outlets and smaller tax collections for the states.
A number of recent top chain retailers are now gone and more will inevitably join them. As the chains become smaller or disappear the demand for mall space and strip center locations will fall, not good news for commercial real estate holders. In my area, as an example, Circuit City locations have closed.
The problem with retail outlets is that everything they carry can be found online. Why buy locally when you can purchase online, often with no sales tax or delivery charges?
Forbes describes the situation as the “Coming Death of the American Shopping Mall.”
“I don’t think we’re overbuilt, I think we’re under-demolished,” Daniel Hurwitz, president and CEO of DDR Corp., told the CoStar Group.
“Online retailers are relentlessly gaining share in many retail categories, and offline players are fighting for progressively smaller pieces of the retail pie< says Jeff Jordan, writing in The Atlantic Monthly. “A number of physical retailers have already succumbed to online competition including Circuit City, Borders, CompUSA, Tower Records and Blockbuster, and many others are showing signs of serious economic distress. These mall and shopping center stalwarts are closing stores by the thousands, and there are few large physical chains opening stores to take their place. Yet the quantity of commercial real estate targeting retail continues to grow, albeit slowly. Rapidly declining demand for real estate amid growing supply is a recipe for financial disaster.”
Now, by a vote of 69-27 the Senate has passed the Marketplace Fairness Act. The legislation is supported by bricks-and-mortar shopping outlets, no surprise there. However, it is also supported by large online retailers, companies that can easily afford the logistical headaches of tax collections from thousands of governmental agencies.
Will the proposed legislation pass the House and agin support from the President? This is to be seen. But what seems obvious is that in some way universal online sales taxes are going to shop up on most larger sites, and probably sooner rather than later.
The next step after passage of a universal online tax will be to have a central pool which will collect online taxes from all Internet retailers with revenues above $1 million and then make distributions to the states, perhaps on a per-capita basis. Such a pool will solve the complexity, collection and distribution problem with a single online address.
As to shopping malls themselves, look for well-located centers to become, er, well-located residences with up-scale shopping and restaurants nearby, and plenty of parking.
Foreclosure Activity Hits Six-Year Low
Foreclosure activity hit a six-year low in April according to RealtyTrac, but while home losses were down in general they actually rose in states where foreclosure actions must go through local courts.
Maryland, for example, is the nation’s wealthiest state in terms of household income and yet foreclosure activity – default notices, scheduled auctions and bank repossessions — rose 199 percent this April when compared with April 2012. The reason? All foreclosure actions must go through the court system.
Some will look at the Maryland numbers — and the numbers in other judicial states — and blame the rising foreclosure activity levels in those jurisdictions because lenders generally cannot move as quickly to foreclose. In fact, the problem has not been with the court system, rather it has been caused by efforts to avoid wrongful foreclosures as a result of robo-signed claims and questions regarding who actually has the right to foreclose when notes are endorsed in blank or lost.
“The April numbers indicate that the pig is moving through the python when it comes to deferred foreclosures in judicial foreclosure states,” said Daren Blomquist, vice president at RealtyTrac. “Foreclosure starts have been increasing for several months in many of the judicial states, and now that increased volume is showing up in the second stage of the process: the public foreclosure auction. Scheduled foreclosure auctions in judicial states jumped to a 30-month high in April, evidence that lenders are serious about moving forward with completing the foreclosure process — either through repossession or sale to a third-party investor at public auction.
“Meanwhile, foreclosure starts are bouncing higher in a handful of non-judicial states where servicers are adjusting to legislation designed to prevent improper foreclosures,” Blomquist continued. “This includes Nevada, Washington and Arkansas, where foreclosure starts have been increasing on an annual basis since late 2012, along with Oregon and California, where foreclosure starts are still down from a year ago but have been moving steadily higher in recent months.”
High-level findings From The Report
According to RealtyTrac the latest foreclosure activity report contained the following highlights:
- Scheduled judicial foreclosure auctions (NFS) increased 22 percent from March to April and were up 31 percent from a year ago to the highest level since October 2010 — a 30-month high.
- Scheduled foreclosure auctions increased from a year ago in 15 of the 26 judicial or quasi-judicial foreclosure states, including Maryland (199 percent increase), New Jersey (91 percent increase), Ohio (73 percent increase), Oklahoma (57 percent increase), and Florida (55 percent). Scheduled foreclosure auctions reached a 68-month high in Ohio, a 31-month high in Maryland, a 27-month high in New Jersey, and an 18-month high in Oklahoma.
- Scheduled non-judicial foreclosure auctions (NTS) in April were down 7 percent from March and down 43 percent from April 2012 to the lowest level since December 2005 — an 88-month low.
- A total of 70,133 U.S. properties started the foreclosure process in April, down 4 percent from the previous month and down 28 percent from a year ago.
- Despite the nationwide decline, 22 states reported increasing foreclosure starts from the previous month, including New Jersey (138 percent increase), Connecticut (46 percent increase), Texas (37 percent increase), Georgia (35 percent increase), Oregon (16 percent increase), and California (13 percent increase). Foreclosure starts reached a 36-month high in Connecticut, a 27-month high in New Jersey, and were up on a monthly basis for the third consecutive month in California after hitting a 90-month low in January, when new legislation impacting the foreclosure process took effect.
- Lenders repossessed 34,997 U.S. properties in April, down 20 percent from March and down 32 percent from April 2012 to the lowest level since July 2007 — a 69-month low.
- Lender repossessions (REO) decreased from a year ago in 37 states and the District of Columbia in April, but some notable exceptions where REO activity increased from a year ago included Washington (164 percent increase), Maryland (98 percent increase), Oklahoma (19 percent increase), and Ohio (17 percent increase).
- Nevada posted the nation’s highest state foreclosure rate for the second month in a row despite a 15 percent monthly decrease in foreclosure activity.
- Akron, Ohio, posted the nation’s highest metro foreclosure rate in April thanks in part to a 147 percent annual increase in overall foreclosure activity. One other Ohio city (Columbus), along with five Florida cities, Las Vegas, Myrtle Beach, S.C. and Chicago also registered top 10 metro foreclosure rates in April.
- As of the beginning of May, A total of 11.3 million mortgages nationwide were seriously underwater, meaning combined amount of mortgages secured by the home was at least 25 percent more than the estimated value of the home. That represented 26 percent of all outstanding mortgages, but was down nearly 1.5 million from the 12.8 million seriously underwater mortgages in May 2012.
New Mortgage Rules Favor Borrowers — and Taxpayers
Mortgage borrowers are about to get more protections when financing real estate as a result of new rules for Fannie Mae and Freddie Mac.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, lenders can avoid virtually all liability by making what are called “qualified mortgages” or QMs. In basic terms, such loans include all fully-documented, 30-year FHA, VA and conventional mortgages which have points and fees that do not exceed 3 percent of the loan amount. Such loans are generally available with little down which makes them extremely attractive to purchasers, especially first-time buyers.
The results of the Dodd-Frank rules have been dramatic: Prior to the mortgage meltdown the typical foreclosure rate across the country was .4 percent. Then, with the creation of toxic loan products which were sold between 2000 and 2008, foreclosure rates soared.
With the introduction of Dodd-Frank standards the foreclosure level for loans made since 2010 has fallen to .2 percent for Freddie Mac and .1 percent for Fannie Mae according to Lawrence Yun, chief economist for the National Association of Realtors. Of course, lower foreclosure rates mean less risk and less risk means lower mortgage rates.
Now, under new rules announced by the Federal Housing Finance Agency (FHFA), the governmental agency that oversees Fannie Mae and Freddie Mac since they were nationalized, the two big mortgage buyers will no longer be able to purchase loans which do not meet basic QM standards.
The new rules — which go into effect January 10, 2014 — will protect borrowers by limiting the market for non-standard financing. Since most lenders have been following the QM standards since the passage of Dodd-Frank the directive from FHFA will not be a new regulatory hurdle.
At the same time the new FHFA directive will also protect taxpayers by assuring that Fannie Mae and Freddie Mac do not purchase loans with excess risk. So far, taxpayers have loaned $187 billion to Fannie Mae and Freddie Mac of which roughly $50 billion has already been repaid.
According to FHFA:
Beginning January 10, 2014, Fannie Mae and Freddie Mac will no longer purchase a loan that is subject to the “ability to repay” rule if the loan:
___ is not fully amortizing (meaning Fannie Mae and Freddie Mac will not purchase loans which require a huge balloon payment),
___ has a term of longer than 30 years, or
___ includes points and fees in excess of three percent of the total loan amount, or such other limits for low balance loans as set forth in the rule.
“Effectively,” says FHFA, “this means Fannie Mae and Freddie Mac will not purchase interest-only loans, loans with 40-year terms, or those with points and fees exceeding the thresholds established by the rule.”
Rent Affordability Drops As Incomes Fall
While stock market values soar, executive bonuses rise and big corporations continue to shelter massive profits the fate of many renters continues to decline: a new study by the Center for Housing Policy shows that one-in-four tenants now spend at least half their income on rent.
The big question raised by the report is just how long rental expenses can continue to rise while incomes continue to fall.
“Median household income,” according to the Census Bureau, “was $50,054 in 2011, 1.5 percent lower in real terms than the 2010 median, 8.1 percent lower than the 2007 (the year before the most recent recession) median ($54,489), and 8.9 percent lower than the median household income peak ($54,932) that occurred in 1999.” (parenthesis theirs)
A new report from the Center, a part of the National Housing Conference, shows that “working renters saw their housing costs rise by 6 percent from 2008 to 2011, while their household incomes fell more than 3 percent.”
In comparison, those who owned saw an effective decline in housing expenses as interest rates, property taxes and homeowners insurance premiums have generally fallen. This happened because the Federal Reserve has forced down interest rates and lower property values since 2007 also mean declining property taxes and reduced property insurance bills because both expenses are based on home values.
“While the economy pushed both owners’ and renters’ incomes down, the shift away from homeownership is pushing rents up due to increased demand, said report co-author Maya Brennan. “What we’re seeing with the rental market is not explainable by population trends alone—it clearly reflects the movement of former homeowners into rentals as well as delays in home purchases by current renters, but this increase in rental demand has not been matched by an increase in supply. This imbalance leads to rising rents in markets across the country.”
Major findings from the report, entitled Housing Landscape 2013, include:
___ Nearly one in four working households spends more than half of its income on housing. The share of working households with a severe housing cost burden increased significantly between 2008 and 2011, rising from 21.8 percent to 23.6 percent.
___ Declining incomes have exacerbated housing affordability problems for working renters. The median housing costs of working renters rose nearly six percent between 2008 and 2011 while their median incomes fell more than three percent.
___ Severe housing cost burden was most prevalent among working households earning less than 30 percent of area median income (AMI). Eight in ten working households earning less than 30 percent of AMI (but working an average of at least 20 hours per week) were severely burdened in 2011, a much higher share than for other income groups. Increases in housing cost burdens occurred primarily among working households with incomes at or below 50 percent of AMI, but even some working households earning between 51 and 120 percent of AMI are faced with severe housing cost burdens.
For more, see: Housing Landscape 2013
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