Mortgage Business

The Effect of the Elections

20140309-080351.jpgThere have been hundreds of analyses published regarding the effect of the elections going forward — especially with regard to the economy and real estate. All of them seem to reach a similar conclusion. There is not going to be a major change in action unless the White House and Congress find common ground. Up until now there has not been a lot of that going on and there is no reason to believe that either of them received a wake-up call because of the election results. Congress needs more votes on one side to override Presidential vetoes. The President does not have a majority to get legislation passed and thus is likely to use Executive Orders as a tool more frequently.

The bottom line is that, for major changes to happen, both sides must compromise. Thus, on major issues such as what to do with Fannie Mae and Freddie Mac, entities that have been under government conservatorship since the financial crisis — no action is likely. There is some hope that Congress could act in the “lame duck” session to extend at least one important real estate tax break — the exemption of cancelled debt for homeowners. Without action, those going through short sales are penalized and many are reticent to list their houses because of the potential tax consequences. With members of Congress not having to worry about reelection during the short session, some theorize that there is a greater chance of taking this action now.

Speaking of the economy, even though Congress and the President may not be able to get much done in the next two years, that could be a good thing in some ways. In the past six months, the economy has grown at a very good pace. Jobs are being created. The federal budget deficit is shrinking. Yes, government intervention was needed when the financial crisis hit, but intervention now would be less helpful. There is at least one exception. Sooner or later we must tackle the long-term debt situation which will become dire if we don’t do something as America ages. The long-term projections are frightening and must be addressed now for the sake of future generations.

The Markets. In the past week, rates were stable near their lows for the year. Freddie Mac announced that for the week ending November 13, 30-year fixed rates ticked down slightly to 4.01% from 4.02% the week before. The average for 15-year loans decreased slightly to 3.20%. Adjustables were mixed, with the average for one-year adjustables falling to 2.43% and five-year adjustables increasing to 3.02%. A year ago, 30-year fixed rates were at 4.35%, higher than today’s levels. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans were slightly down on mixed results from October’s employment report. While the unemployment rate declined to 5.8 percent, nonfarm employment rose by 214,000 jobs, which was below conse nsus expectations. Net revisions for payroll employment in August and September added 31,000 more jobs to the initial readings.” 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 November 14, 2014

Daily Value Monthly Value
Nov 13 October
6-month Treasury Security 0.08%  0.05%
1-year Treasury Security 0.15%  0.10%
3-year Treasury Security 0.97%  0.88%
5-year Treasury Security 1.64%  1.55%
10-year Treasury Security 2.35%  2.30%
12-month LIBOR  0.552% (Oct)
12-month MTA  0.113% (Oct)
11th District Cost of Funds  0.663% (Sept)
Prime Rate  3.25%

As homebuyers put down all cash to win houses, some of them might wonder how quickly they can convert that equity back into Benjamins. The answer? They can get a cash-out refinance almost immediately, thanks to a little-known Fannie Mae program (Freddie Mac offers an alternative as well). The delayed financing program allows all-cash homebuyers to refinance and take equity out as soon as they close on the home purchase. Before mid-2011, when the program went into effect, homebuyers had to wait at least si x months before tapping home equity. That’s good news for homebuyers in all-cash sales, many of which are investors but others are retiring baby boomers trading down to more manageable homes and pocketing the difference when they do it. The delayed financing program gives them the option to take home even more cash while enjoying historically low interest rates on a conventional home loan. Even though the wait time is waived, the program comes with rules such as the sale must have been “arm’s length” (no parents selling to children), the owner can’t have more than 10 financed properties and there can’t be any other liens against the property. Why would a homeowner use the delayed financing program instead of waiting the six months to tap equity?

  • A property may be in such disrepair that a lender won’t underwrite it. With this program, a homebuyer can buy the property, make quick repairs and take money out of it before six months elapse.
  • The chain of buyers and sellers might have irreconcilable timing issues.
  • It can be used as a tactical advantage in a hot market. Many sellers would rather accept cash offers over those with a financing contingency, sometimes even when the cash offer is lower. The program allows homebuyers to present a cash offer, then replenish their liquidity once the deal is done.
  • The program can act as a hedge against rising interest rates– if the buyer believes rates will increase in the six months after buying. Source: Mortgage Daily Note: If you or one of your clients have purchased a home for cash within the past six months, we can help new homeowners take advantage of this program.  

The National Association of Realtors (NAR) 2014 Investment and Vacation Home Buyers Survey indicated that vacation home sales jumped 29.7 percent to an estimated 717,000 last year, up from 553,000 in 2012. Vacation home sales accounted for 13 percent of all real estate transactions in 2013, their highest market share since 2006. But while vacation home activity was reaching new heights last year, investment home sales sank: an 8.5 percent drop to an estimated 1.10 million, down from 1.21 million in 2012. The market share for investment sales fell to 20 percent in 2013 from 24 percent in 2012. The circumstances behind this real estate seesaw ride are wide and varied, according to industry experts. Lifestyle factors were cited as the primary motivation for vacation homebuyers, with 46 percent of vacation homes located within 100 miles and 34 percent more than 500 miles. Eighty seven percent of the survey respondents stated that they wanted to use the property for v acations or as a family retreat, while 31 percent planned to use it as a primary residence in the future. On the investment home side, rising prices have helped to put the kibosh on enthusiasm for this sector. The NAR survey found that the median investment home price was $130,000 in 2013, up 13 percent from $115,000 in 2012. The NAR survey confirms that flipping activity has slowed as only seven percent of homes purchased by investment buyers last year have already been resold, while another 10 percent are planned to be sold within a year. Source: NAR

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