Mortgage Business

It is Finally Happening

20140309-080538.jpgFor years the slow recovery was hampered by the existence of tighter credit. A vicious cycle was created when the recession caused consumer credit to worsen and at the same time banks tightened up on lending standards. For some time we have been predicting that lending standards in the real estate sector would not loosen up until two factors emerged. Factor one was the stability or recovery of real estate values. It makes sense that lenders would be shy about lending in a real estate sector in which the underlying asset was unstable.

Yet, the real estate markets recovered over the past few years without a significant improvement in lending standards. Why? Some blamed it on new legislation aimed at making lenders more responsible with regard to their lending. But most aspects of the legislation were not implemented until recently. In reality, there was a second aspect we cited over the past few years which has now come to fruition. For the past three years lenders were inundated with refinances because of record low rates. Now with rates still really low but a bit higher than they were, the refinance craze has abated.

It makes sense that lenders would not lower standards while they were overwhelmed with demand. Today, lending standards are loosening because lenders are hungrier. Many national sources for real estate loans have lowered their minimum credit score requirements. And we think that this will flow into other areas of lending such as cars and business loans. This is all part of building a virtuous cycle. Keep in mind that we are not looking for a return to the subprime era or anything close to that. The new legislation we cited makes sure lenders will be more careful. Underwriters are still scouring loans with a fine-tooth comb. But it is interesting that while lenders are implementing the new legislative standards, their requirements are getting somewhat less restrictive.

Weekly Interest Rates OverviewThe Markets. Rates fell last week after the release of the employment report. Freddie Mac announced that for the week ending April 10, 30-year fixed rates decreased to 4.34% from 4.41% the week before. The average for 15-year loans fell to 3.38%. Adjustables were also down with the average for one-year adjustables decreasing to 2.41% and five-year adjustables slipping to 3.09%. A year ago 30-year fixed rates were at 3.43%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans eased a bit following the decline in 10-year Treasury yields. Also, the economy added 192,000 jobs in March, which was below the market consensus forecast but followed an upward revision of 22,000 jobs in February. Meanwhile, the unemployment rate held steady at 6.7 percent.”  Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages Updated April 11, 2014

  Daily Value Monthly Value
  April 10 March
6-month Treasury Security 0.06%  0.08%
1-year Treasury Security 0.09%  0.13%
3-year Treasury Security 0.81%  0.82%
5-year Treasury Security 1.59%  1.64%
10-year Treasury Security 2.65%  2.72%
12-month LIBOR    0.557% (Mar)
12-month MTA    0.124% (Mar)
11th District Cost of Funds    0.709% (Feb)
Prime Rate    3.25%

20140309-080538.jpgThe Senate Finance Committee has passed a two-year retroactive extension of tax relief for households who’ve had home finance debt forgiven by a lender as part of a short sale or loan modification. “We applaud the Senate Finance Committee for approving a bipartisan compromise bill,” NAR President Steve Brown says. The legislation still needs to be passed by the full Senate and also by the House. The issue has been one of NAR’s top legislative priorities since 2007, when the association worked with la wmakers to enact the relief into law and also later to encourage them to extend the relief in 2008 and 2012. The relief expired at the end of last year, and unless the full Senate and House approve the extension, households will face the prospect that when they file their returns next year, they’ll pay tax on so-called phantom income, which is the amount of debt forgiven. Absent the provision, the tax law provides that such forgiven debt is income. “This is, at its core, an issue that’s all about fairness,” Brown says. “It is unfair to ask homeowners who are underwater on their home loan and who make the prudent decision to do a short sale instead of allowing their home to go into foreclosure to pay tax on the forgiven amount of the loan.” Brown says the tax hit encourages owners to walk away rather than sell their house, which hurts neighborhoods and the communities they’re in. The tax relief provided in the past has been one of Cong ress’ bipartisan success stories, and there’s a good chance an extension will pass Congress this year, too, analysts say. Some 350,000 households could be affected by the tax if relief isn’t extended, because that’s the number of households who sold their house last year as a short sale. “And we expect a large number of short sales this year,” says Brown. Source: Realtor.com

Vacation home sales rose strongly in 2013, while investment purchases fell below the elevated levels seen in the previous two years, according to the National Association of Realtors®. NAR’s 2014 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2013, shows vacation-home sales jumped 29.7 percent to an estimated 717,000 last year from 553,000 in 2012. Investment-home sales fell 8.5 percent to an estimated 1.1 million in 2013 from 1.21 million in 2012. Owner-occupied purchases rose 13.1 percent to 3.7 million last year from 3.27 million in 2012. The sales estimates are based on responses from households and exclude institutional investment activity. NAR Chief Economist Lawrence Yun expected an improvement in the vacation home market. “Growth in the equity markets has greatly benefited high-net-worth households, thereby providing the wherewithal and confidence to purchase recreational property,” he said. &l dquo;However, vacation-home sales are still about one-third below the peak activity seen in 2006.” Vacation-home sales accounted for 13 percent of all transactions last year, their highest market share since 2006, while the portion of investment sales fell to 20 percent in 2013 from 24 percent in 2012. Yun said the pullback in investment activity is understandable. “Investment buyers slowed their purchasing in 2013 because prices were rising quickly along with a declining availability of discounted foreclosures over the course of the year,” he said. “With a return to more normal market conditions, investors now have to evaluate their purchases more carefully and do their homework,” Yun added. The median investment-home price was $130,000 in 2013, up 13 percent from $115,000 in 2012, while the median vacation-home price was $168,700, up 12.5 percent from $150,000 in 2012. All-cash purchases remained fairly common in the investment- and vacation-home mar ket: 46 percent of investment buyers paid cash in 2013, as did 38 percent of vacation-home buyers. Source: NAR

As the housing market and hiring continue to recover, consumers are making their home loan payments a priority again. A growing number of borrowers are paying off their home loans before their credit card debts, reversing a trend first seen in September 2008, according to a TransUnion study that examined the delinquency rates of borrowers with mortgages, auto loans and credit card debt. The delinquency rate for home loans fell to 1.71% in December, down from 3.32% in September 2008. Meanwhile, the rate of credit card delinquencies was 1.83% in December, down from 3.29% in 2008. After the housing bubble burst, many borrowers owed more on their homes than they were worth and stopped making home loan payments a priority. “As unemployment rose and home prices cratered, many borrowers chose to value their credit card relationships above their home loans,” said Ezra Becker, vice president of research and consulting for TransUnion. “When people lose jobs they need credi t cards as a source of liquidity.” Yet, last September the delinquency rates began to shift to pre-recession norms — home loan delinquencies fell to 1.79%, while credit card delinquencies came in at 1.86%, TransUnion found. One debt borrowers continue to prioritize over everything else is auto loans, mainly because they rely on their cars to get to work. In December, the delinquency rate on auto loans was 0.87%, compared with 1.65% in September 2008. Source: CNN/Money

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