Cloudy with a chance of less qualified homebuyers? Naahhhhhhh!

Product Update

ATR (Ability to Repay)/QM (Qualified Mortgages) and the Impacts on Home Buyers

January 10^th signified additional revisions to the home loan financing industry and has created high anxiety and unanswered questions as to how it will affect home buyers ability to obtain financing.  After sitting through multiple webinars, conference calls and seminars regarding this topic, I feel comfortable enough to present to you the reader’s digest version of the changes that have everyone freaking out!:

To start,  a brief definition and its origin:  ATR/QM represents a chapter in the Dodd-Frank Act, that 900 page bill that has multiple phases to it, this being the latest phase to the bill.  Essentially the lender is required to make a reasonable and good faith determination of the consumers’ ability to repay the loan according to its terms…This brings us to yet another aspect of the bill that rolls out January 18^th, Higher-Priced Mortgage Loan (“HPML”).  We’ll come back to that….

Here is what is eliminated:

·         Negative amortization (Shocker)

·         Interest Only (Say what??)

·         Balloon payments (Boooooo)

·         Anything over 30 yr amortization (You’re killin me smaaaalls!)

·         Debt-to-Income not to exceed 43% (Don’t sweat it, I will explain)

·         Total points and fees not to exceed 3% (Don’t sweat it, I will explain)

With regards to Debt-to-income ratio, this can exceed 43% if the automated underwriting system (AUS) issues an “approval” rating.  So, if DU (Fannie Mae’s AUS) or LP (Freddie Mac’s AUS) issues an approval and the DTI is 49.8%, First Cal will still approve the loan.  

With regards to “HPML”, this will not apply to investment property financing which is typically accompanied with points.  It DOES affect buyers who like to buy out the mortgage insurance and pay it upfront.  However, First Cal allows borrowers to finance the upfront mortgage insurance!

So, what does this all mean for your buyers?  It’s really “business as usual”.  Personally I haven’t originated a neg-am, interest-only, balloon or 40 yr mortgage, or a loan with a debt-to-income ratio over 50% on a CONVENTIONAL LOAN (remember FHA/VA doesn’t apply to QM), in years.  

Next week I will tell you why statistically speaking, few home buyers will be affected by FHA’s decision to lower loan amounts will have little impact on the market.   

Financial Markets 

The Dow Jones has steadily surged over 400 pts through the holidays and over the past 30 trading sessions with most of the gains coming before Christmas.  The market has bobbed along the past two weeks amidst mixed earnings reports. 

The bond market, which often trades inversely to stocks, bucked tradtional trading trends with investors acting bullish on bonds.  As always, I focus on the Fannie Mae 3.5 coupon which is most directly related to our buyers’ interest rates.  The Fannie Mae 3.5 coupon has improved roughly 100 basis points over the past month, which loosely translates into .25% in lower rate on a 30 yr fixed mortgage. 

 

Southern Nevada Real Estate Related Data

This past Tuesday, the GLVAR released fresh real estate data for 2013 and the article below is a great reference for buyers interested in understanding what the market has done.  Among the highlights, 62% of re sale homes were traditional sales….Roughly 2.8 months supply (8100 homes, townhomes and condos on the MLS as of December).   Generally speaking equilibrium occurs when there is roughly a 6 month supply of homes so the “seller” still holds the cards….

http://www.reviewjournal.com/business/las-vegas-housing-ends-2013-way-it-started-big-annual-price-gains

For more real estate financing information, please visit my website

Financial Markets

The Dow closed Friday at 15,570, up 1.1% for the week and just 150 points away from its all time high.  Stocks have risen 3 weeks straight as earnings season continues to impress investors.  In atypical fashion, mortgage backed securities have also rallied during the same period, improving another 100 basis points over the past two weeks, with 30 yr fixed mortgage rates now in the low 4’s.  In completely unimportant and unrelated news, Twitter is primed to go public and the initial IPO is projected to open for anywhere from $17-$20 per share.  

Southern Nevada Real Estate Related Data

The Las Vegas real estate market continues to be the hotbed of discussion for real estate analysts nationwide.  Generally speaking, Las Vegas led the nation on the way up in appreciation during the housing bubble, led the nation on the way down during the bubble-burst, and now leads the nation again in appreciation on the recovery.  The debate rages on if the recovery is simply a over-due correction to an over-correction, or if it is another bubble in the making with shadow inventory potentially looming.  What is agree-able by most analysts, is that the current median price of homes are in more alignment with average house-hold incomes than during the bubble or the bust.  New home construction is much more aligned with the population growth as well. I Below is Sales Traq’s most recent release which presents great real estate data as always.  http://salestraq.com/ff/fastfacts-a3l5.pdf

Below is a video clip from Channel 13 regarding the most recent discussions to move the Mets’ AAA affiliate baseball team, 51’s, to Summerlin.  http://www.jrn.com/ktnv/news/201992581.html
 

How does the Government Shut-down affect mortgage financing??

It doesn’t, fugghedaboowwd-eht……Actually processing 4506-T’s, which is where the lender gets the borrower’s tax returns directly from the IRS will be delayed, but lenders are working on getting temporary waivers for this.  The same goes for verifying social security numbers but if the borrower provides a copy of their social security card than this can be side-stepped as well. 

Financial Markets
The Dow ended Friday up over 100 pts, just a day after a 300 point gain.  The primary catalyst for the move is word that the political stalemate in Washington over the government shutdown may be nearing an end.  As a nice change of pace, mortgage rates have remained flat the past two weeks, providing for a calm interest rate environment for consumers.   Check out this funny You-Tube clip, basically dumbing-down the debt ceiling debate.  http://www.youtube.com/watch?v=Li0no7O9zmE

Southern Nevada Real Estate Related Data
Notice of Defaults for Clark County are getting filed at an unprecedented clip and it appears  the long awaited “shadow inventory” is about to crash the housing-appreciation party.  Realty Trac reported 1,000 NOD’s on September 30^th alone.  The one day tally was attributed to a law change on October 1^st, and is not considered to be a trend, but we can certainly expect more activity than what we have seen the past 18 months.  Filings are up 36% from 3^rd quarter 2012 to 3^rd quarter 2013. 

http://www.reviewjournal.com/business/housing/housing-default-activity-shifts-high-gear-clark-county-and-nevada

Not so coincidentally, the median priced home for September 2013 dropped 1.1%, down from $182,000 to $180,000, but up nearly 30% from September 2012.

http://www.reviewjournal.com/news/las-vegas-housing-recovery-stalls-after-19-months

For more real estate financing information, please visit my website: http://www.matthewtmaltese.com/home.html

Welcome back Football!  We’ve missed you. 
Beer and buffalo wings for the next 5 months J

Financial Markets
Mortgage-backed securities sailed through gut wrenching swells throughout Thursday and Friday, essentially losing 100 basis points in just a few hours and then gaining back 100 basis points Friday morning.  To offer perspective, a 30 yr fixed rate of 5% on a $200,000 loan may have had a cost of 0 dollars early Thursday, would have cost the consumer nearly $2,000 in points by the end of the day, only to discover Friday morning it would have cost 0 dollars again.  The recovery in mortgage-backed securities stemmed from comments made by Russia’s leader Vladimir Putin, who stated that he would continue to support Syria with arms in spite of a potential external attack.  A meager jobs report released Friday also helped mortgage rates rally.  The weak job report provides speculation that the Fed will continue its 85 Billion per month bond buying program for a longer period of time. 

So, where are rates going? It’s simple…We just have to make educated guesses on what the implications would be to the markets on the following issues:

·        Fed Tapering: Psychological Impact vs. Supply/Demand Math (overwhelming Fed bid vs. less mortgage supply and less Treasury issuance)

·        Fed Rate Policy:  Fed Funds staying put at 0-25bps? For how long?  Says who?

·        New Fed Chairman: Yellen? Summers? Bernanke staying?

·        U.S. Jobs Data:  Labor Force vs. U/E Rate vs. Monthly Non-Farm Payrolls vs. Automation

·        War: Strike on Syria? Higher oil prices?? 

·        U.S. Inflation Data: Where’s the demand-pull inflation?  Can we afford higher energy costs?

·        U.S. Housing Data:  Nation of Renters vs. Purchase demand. And have recent price appreciations already stalled?

·        Emerging Markets: Slower expansion in Brazil, Russia, India, China?

·        Global Central Bank Policy: Will Abenomics work in Japan?  More ECB easing ahead??

·        Great Rotation: Marginal investor dollars going from bonds to stocks. What about repatriation $$ flows?

·        Stock Bubble: QE Inflated Stock Bubble? Do earnings match forward multiples?

·        U.S. Debt Ceiling: We gonna “default”?  Does it matter?

·        European Debt Contagion: Where is the target painted? Portugal? Italy? Greece? Does anyone still care? Why did you read this far down?

The point is, my advice to our clients will be to lock in the interest rate as soon as they can.   Going back to what I wrote last week, the average 30 yr fixed since 1971 is 8.6%.  5% is less than 8.6%.  Trends like “rates are always lower on Fridays when there is a full moon” is pretty much nonsense.    

Southern Nevada Real Estate Related Data

According to a report released by Zillow, As of June 30^th 2013, roughly 51.6% of home owners in Southern Nevada have positive equity.  This is up significantly from the 1^st quarter of 2012 where only 29% of home owners had positive equity, leaving 71% of home owners underwater. 

http://www.reviewjournal.com/business/housing/rising-prices-lift-half-las-vegas-homes-above-water

For more real estate financing information, please visit my website: http://www.matthewtmaltese.com/home.html

First Cal's History

Product Alert:

FHA will now allow financing for borrowers who experienced a short sale, bankruptcy, foreclosure or deed in lieu 12 months after the incident, instead of the 2-3 yrs set in the current guidelines.  ***However, the incident must have been triggered by an “Economic Event”.  An “Economic Event” is either a loss of employment or loss of income by more than 20%. 

Financial Markets

The rise in mortgage rates over the past 90 days is well documented by now.  Mortgage rates reached near historic lows towards the beginning of May.  Mortgage-backed securities launched into a free-fall, dropping nearly 1,000 basis points in just 45 days.  400 basis points were lost in just 4 days of trading in the middle of June, the equivalent of nearly .75% in rate.  The sell-off in mortgage backed securities was historic, never in the history of the instruments’ existence had it ever sold off so dramatically in such a short period of time.  Lost in all this is that while rates moved significantly off its low, the 30 yr fixed is still nearly ½ what the average 30 yr fixed rate is over the past 40 yrs.  The average 30 yr fixed rate mortgage since 1971 is 8.6%.  (according to Freddie Mac analysts quoted in USA Today June 28^th, 2013)

 

Southern Nevada Real Estate Related Data

I noticed an interesting statistic reviewing the UNLV Lied Institute for Real Estate Studies, Report on Nevada’s Housing Market for the month of July.  In 2002, non-owner occupied home buyers represented 40% of the home purchases.  By 2009, this class peaked to roughly 90%.  In 2013, year-to-date, non-occupying home buyers represent 60% of the market.  I believe this class includes home buyers purchasing vacation homes with the intent to eventually move to the area. 

http://business.unlv.edu/uploads/files/DEE_NHM_July2013.pdf

Have a great week! BACK TO SCHOOL BABY!!!

For more real estate financing information, please visit my website: http://www.matthewtmaltese.com/home.html

Best of 3 Worlds, rising stock prices, rising house prices, declining mortgage rates

First Cal Mortgage is the #1 lender in Clark County for Hardest Hit Funds HARP refinances, yet only the top 20^th lender in the area, a true testament to our aggressive menu of products and commitment to pass on pure agency products to the consumer. 

Financial Markets

The Dow closed at 14,565 on Friday, up 11.5% from the same time last year, but down slightly for the day on the heels of a disappointing unemployment report.  Unemployment actually dropped from 7.7% to 7.6%, but the job market only grew by 88,000 jobs.  This is down from 268,000 jobs created for the month of February.  Economists typically like to see 200,000 to 400,000 jobs created monthly to consider strong economic growth. 

Rarely do we get “the best of both worlds” and typically when the stock market surges, bond market sells off causing mortgage interest rates to rise, but over the past month, we have watched rates drop along with rising stock prices.  The FNMA 3.0 coupon has improved over 150 bps over the past month.  This loosely translates into a .25% to .375% improvement in the 30 yr fixed mortgage to the consumer.    

Southern Nevada Real Estate Related Data

According to the CoreLogic, sited in the article below, home prices rose 10.2% for the month of February, nationwide, as compared to February 2012, the largest gain since March of 2006…..Gulp….This marked the 12^th consecutive month of appreciation, underscoring the strength of the housing recovery.  Inventory shortage is not just in Nevada, nationwide, available homes have hit a 13 year low.  Leading the way was Nevada, of course, logging a 19.3% annual gain. 

http://www.reviewjournal.com/business/housing/us-home-prices-rise-nevada-leads-western-states

Have a great week!  For more real estate financing information, please visit my website: http://www.matthewtmaltese.com/home.html