Low-down-payment mortgages are back

One of the culprits in the building and bursting of the nation's housing bubble -- the low-down-payment mortgage -- is back in favor and readily available at a lender near you.

Numerous firms are taking part in a new and somewhat controversial program offered by Fannie Mae for fixed-rate conventional home loans with 3 percent down payments. Freddie Mac started backing similar loans in January.

The two bailed-out housing finance corporations reintroduced their 3 percent down products in December as a way to assist prospective first-time home buyers who have the income to pay off a mortgage but lack the savings for a large upfront payment. Before the announcement, Fannie and Freddie's lowest down-payment option was 5 percent.

Lenders say that millennial home buyers -- those born after 1980 -- can especially benefit from this 3 percent down program.

Proponents contend that these 3 percent-down-mortgages are vastly different from the risky subprime mortgage products that fueled the housing bubble and led to the financial crisis. As a result of the crisis, the federal government infused Fannie and Freddie with $187 billion once borrowers started defaulting. (They've since repaid the bailout with a $38 billion profit.)

Adjustable rates or interest-only teaser periods are forbidden. Borrowers must accurately document their finances and ability to repay. They also need a minimum 620 credit score, a low debt-to-income ratio, and must take a home ownership education course.

"There's many factors that go into the risk of a certain loan and down payment is just one of them," said Fannie Mae spokesman Andrew Wilson. "You get into the danger zone when you're layering a lot of risk factors."

Still, some lawmakers have questioned whether the 3 percent-down products are a return to the loose lending practices that brought on the 2007-08 real estate market collapse.

That danger -- real or exaggerated -- was a hot topic among Republican members of the House Financial Services Committee during Jan. 27 testimony by Melvin Watt, director of the Federal Housing Finance Agency that regulates Fannie and Freddie.

"You're once again putting people into homes that they can't afford," said Rep. Jeb Hensarling, R-Texas.

Down payments of about 20 percent were the norm for most home mortgages prior to the 1980s. A large down payment helps assure lenders that a borrower has enough of a stake in the property to keep up with the monthly payments. Sizable down payments also make it less likely that borrowers will walk away if home values fall and they owe more on their mortgage than the property is worth.

Fannie Mae and Freddie Mac relaxed their down payment requirements during the 1990s, moving from 10 percent to 5 percent to 3 percent, and later even zero percent down in the early 2000s.

The government's Financial Crisis Inquiry Report concluded that Fannie and Freddie "added helium to the housing balloon" by buying subprime mortgage-backed securities and loosening their standards for guaranteeing loans. But they weren't central causes of the crisis: "They followed rather than led Wall Street and other lenders in the rush for fool's gold."

After the crash, Fannie and Freddie were crucial to propping up the housing market when lenders were skittish to make loans without government guarantees. Together, both entities own or guarantee just under 60 percent of all new U.S. mortgages.

Research by the Urban Institute, a left-leaning think tank, shows that default rates on recent Fannie Mae-backed mortgages are similar among borrowers who make 20 percent down payments and 3 percent to 5 percent payments. Defaults on older, pre-crash loans were much higher with low down payments.

see more: http://www.rep-am.com/Business/876977.txt

The crazy world of negative rates: Banks pay your mortgage for you?

Up is down, black is white.

Or at least that's what it feels like in Europe, where at least one bank is paying some customers who borrow from it because interest rates have turned negative.

The European Central Bank has slashed official rates to record lows, and is pumping billions of euros into the economy to boost growth and inflation.

That has forced rates on some mortgage products far enough below zero to create a big headache for the banks: Do they now owe their borrowers?

"We are in uncharted waters," said Luca Bertalot, secretary general of the European Mortgage Federation. "Monetary policy is changing the funding landscape in Europe completely."

Here's how it works. Mortgage interest in Europe is often pegged to interbank lending rates known as Libor or Euribor. Short-term rates on a Swiss franc version of Libor are now approaching minus 1.0%.

Spain's Bankinter, which sold mortgages pegged to Swiss Libor, told CNN it couldn't pay interest on a loan (go figure!) so instead reduced the principal for some of its customers.

Bankinter's policy was first reported by The Wall Street Journal earlier this month.

With no shift in ECB policy likely for some time, the banking industry is worried about how things will pan out. Bertalot said mortgage lenders were talking to the ECB and national central banks about how to deal with the challenge.

"There are no clear guidelines on how to move forward," he said.

Related: Fed rate hike: Here's what matters

The Bank of Spain told CNN it has not issued any official guidance to banks on how to adjust lending practices to the negative interest rate environment. The Bank of Portugal said in March that lenders should take "precautionary measures."

Negative interest rates have created anomalies elsewhere in Europe.

Germany issued its first 5-year bond with a negative yield in February, meaning investors are prepared to make a small loss buying super secure government debt. In the same month, a small Danish bank said it would charge customers 0.5% interest on their deposits from March. So for every $100 they deposit, the bank takes 50 cents.

see more: http://money.cnn.com/2015/04/22/investing/negative-mortgage-rates-europe/

Commercial mortgages triple in South Florida

Overall commercial mortgage volume more than tripled in South Florida between 2009 and 2014, according to a study released by Miami-based BridgeInvest, a private mortgage lender.

Over $11.4 billion in commercial mortgages were financed in 2014, up from about $9.8 billion in 2013 and $3.5 billion in 2009

Miami-Dade County captured the biggest slice of mortgage volume in the region in 2014 with 57 percent, followed by Palm Beach County at 23 percent and Broward County at 20 percent.

BridgeInvest used data from CRS Power Tool Mortgage, a Cushman & Wakefield research publication, for the study.

While Miami-Dade captured almost two-thirds of the commercial mortgage volume in 2014, the county also saw the most growth with a 42 percent year-over-year increase, compared to the 13 percent growth in Palm Beach and a 26 percent decline in Broward over the same period.

“Miami-Dade consistently has had more, but it’s considerably more this year when compared to Broward and Palm Beach,” said Alex Horn, managing partner of BridgeInvest. “Miami grew so much more. It’s very interesting and alludes to the fact that we’re seeing so much changing in the county,” he said.

The study broke out into seven classes of mortgages: land and construction, retail, multifamily, industrial, office, hotel and other. Land and construction dominated, with about $10.1 billion in mortgages, or 23 percent, followed by retail with $9.4 million, or 18 percent, and multifamily with $7.1 billion, or 17 percent.

see more at: http://www.bizjournals.com/southflorida/blog/morning-edition/2015/04/commercial-mortgages-triple-in-south-florida.html

New Research: Reverse Mortgages, SPIAs And Retirement Income

Retirees need longevity protection and additional funds. Annuities and reverse mortgages can meet those needs. While annuities have been researched extensively, reverse mortgages haven’t received as much attention. We need research on how to fit these two products together in overall retirement plans. I’ll launch that effort here.

Let’s say a new client walks into an advisor’s office and says, “I want to build a secure income for retirement and I’ve heard about both annuities and reverse mortgages. What should I do?” The advisor’s answer is likely to be: “Let’s focus on whether you should buy an annuity and leave the reverse mortgage for later in retirement. You can tap home equity in the future if you need to.”

But that may not be the best answer. It might be better to set up a reverse mortgage line of credit at the time of retirement for use later on, or opt for the tenure option that will make level monthly payments for as long as the borrower occupies their home. Or an even better option might be to purchase a single premium immediate annuity (SPIA) and combine it with either a reverse mortgage line of credit or the tenure option.

Which alternative is best? To reduce the inevitable confusion, I’ll look at these alternatives conceptually, and then use an example to model the financial outcomes.
First things first

We need to ask questions before making recommendations: How much savings does the client have? Will systematic withdrawals or purchasing annuities provide adequate retirement funds, or does the client need even more income? How long does the client plan to stay in their current home? Is the home mortgaged? Does the client hope to leave the home as a bequest or is it more important to generate retirement income? Does the client have long-term care insurance, or is the plan to rely on home equity? If a reverse mortgage line of credit is set up, what is the likelihood the client will use it?

Reverse mortgages are offered under the home equity conversion mortgage (HECM) program administered by HUD and insured by the FHA. A new version of the program was introduced in 2013 offering three alternatives – line of credit (LOC), payments for set periods, or a tenure option. Under the HECM program, borrowers need to be age 62 or older, and the amount of home value that can be mortgaged is capped at $625,000. There are non-HECM proprietary reverse mortgages for larger amounts, but they are not government guaranteed and do not have the HECM standard loan provisions.

Reverse mortgages have significant up-front fees, so effective borrowing costs are high if only small amounts are borrowed, or borrowed for a short time. An example from the National Reverse Mortgage Lenders Association (NRLMA) calculator estimates fees of $8,301 for a $250,000 home. Lending limits (referred to as “principal limits”) depend on the age of the borrower and interest rates. For a 65-year-old in this $250,000 home, the current principal limit would be $135,500, so the up-front costs would be 3.3% of the home value or 6.1% of the principal limit. The fees cover loan origination, mortgage insurance and other closing costs, and can be financed as part of the loan, but they come out of the funds available for lending.

see more: http://www.valuewalk.com/2015/04/nreverse-mortgages-spias/

Mortgage rates fall; 30-year averaging 3.66%, Freddie Mac says

Fixed mortgage rates moved lower this week on news of weakness in the labor markets, with Freddie Mac saying lenders were offering conventional 30-year loans at an average of 3.66%, down from last week’s 3.7%

The average offering rate for 15-year loans, which are popular with refinancers, dropped to 2.93%, from 2.98%, the home finance giant reported.

In the latest sign that economic growth may be slowing, the Labor Department said Thursday that claims for first-time unemployment benefits rose last week from a 15-year low set the previous week.

Jobs are a key indicator for analysts considering when the Federal Reserve may increase a benchmark short-term lending rate from near zero, where it has been held since the 2008 financial crisis to stimulate the economy.

If the Fed begins to raise the rate later this year, it could also affect long-term interest rates such as those for mortgages, although the Fed has no direct control over the long rates.

Keith Gumbinger, vice president of HSH.com, which tracks mortgage rates day to day, said other economic reports in recent weeks also have suggested that the economy has lost some momentum, allowing interest rates to ease.

"The employment report for March was rather weak, breaking a year-long string of solid gains in hiring," Gumbinger wrote.

see more: http://www.latimes.com/business/la-fi-freddie-mac-mortgage-rates-20150409-story.html

Urban Institute: 4 million missing mortgages

 A new Urban Institute study says that tight credit standards curbed mortgage lending activity from 2009 to 2013.

Based on the authors’ estimates, if the cautious standards of 2001 had been in place rather than the more severe standards that were in place over these five years, lenders would have made more than 4 million additional loans.

“The number of potential loans that were not made-which we call ‘missing loans’-grew from 0.50 million in 2009 to 1.25 million in 2013. African American and Hispanic families have been particularly affected by this tight credit environment,” the authors say.

The full study can be read here.

Fixed Mortgage Rates Rise in Latest Week

 Average fixed mortgage rates in the U.S. edged up in the latest week, according to mortgage-finance company Freddie Mac.

"Mortgage rates were little changed this week, entering April about where we started the year," Freddie Mac Deputy Chief Economist Len Kiefer stated Thursday.

Mr. Kiefer noted that the final fourth-quarter gross domestic product growth estimate was unchanged from a previous estimate for a 2.2% increase. Also, pending home sales rose 3.1% in February, beating expectations.

 For the week ended Thursday, the 30-year fixed-rate mortgage averaged 3.7%, compared with 3.69% a week earlier and 4.41% a year earlier. Rates on 15-year fixed-rate mortgages averaged 2.98%, compared with 2.97% the previous week and 3.47% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARMs, on average, were at 2.92%, unchanged from the previous week and down from 3.12% a year earlier. One-year Treasury-indexed ARM rates on average were 2.46%, flat from the previous week and up slightly from 2.45% a year earlier.

Read more: http://www.nasdaq.com/article/fixed-mortgage-rates-rise-in-latest-week-20150402-00581

Guess who's issuing slews of mortgages? Not your bank

More home buyers enter the market this spring, but big banks are continuing their retreat from mortgage lending.

That is opening the door ever wider for independent, nonbank lenders. Both volume and profit at these lenders are up from a year ago, according to the Mortgage Bankers Association, but their share of all lending is where the numbers are really soaring.

Nonbank lending rose to 37.5 percent of the market during 2014, up from 14 percent in 2011, according to publication Inside Mortgage Finance.

 "That was attributable to a combination of nonbanks being more aggressive, both in terms of rates and underwriting, and large banks pulling back slightly in the conforming markets," Editor Guy Cecala said.

The leaders in nonbank growth were names like Quicken and Penny Mac as well as other smaller nonbanks, like Charlotte, North Carolina-based Movement Mortgage.

"Our building actually sits in the shadow of a Bank of America headquarters building, and we've been able to gain number one purchase market share in that city inside of five years by offering great service to homeowners," said Casey Crawford, CEO of Movement Mortgage, which he founded in 2007.

Movement's angle is a promise to borrowers that it can close a loan in eight business days, the fastest the federal government allows. It fulfills that promise by approving borrowers before they even apply for a loan.

read more: http://www.cnbc.com/id/102553213