Home sellers – if you aren’t getting offers this week, you are missing out on what will be the closest thing we will see to frenzy conditions the rest of the year! Lower your price a little to get in the game!
California 30-year fixed mortgage rates go down to 3.22%
Saturday, July 30, 2016
The current average 30-year fixed mortgage rate in California decreased 1 basis point from 3.23% to 3.22%. State mortgage rates today ranged from the lowest rate of 3.20% (VT) to the highest rate of 3.34% (AK, NE). California mortgage rates today are 3 basis points lower than the national average rate of 3.25%.
The California mortgage interest rate on July 30, 2016 is down 11 basis points from last week’s average California rate of 3.33%.
The current average 15-year fixed mortgage rate in California remained stable at 2.54% and the current average 5/1 ARM rate is equal to 2.62%.
Those in the business who know the mortgage underwriting guidelines might enjoy this video – here are my takeaways from today’s Caliber Home Loans talk:
‘Investors’ are banks, mutual funds, insurance cos., hedge funds, etc. who invest in steady streams of income. But they get more than the note rate – discount points and admin fees will bump up the annual returns to 5% – 8%. They are motivated to find ways to fund mortgages!
Income-qualifying the self-employed buyers according to their 24 months of bank statements is an idea that should have been implemented by now – it is a fantastic way to qualify the actual income.
Trended credit is a smart and gives benefit to those who pay off credit cards every month.
Alternative credit is here to stay, and anyone who can verify they are paying on 3 lines of credit on time every month – one being rent – can get a mortgage.
We accept that the government will want to subsidize the mortgage industry. The FHA allows for sub-580 FICO scores on FHA loans (which already accept gift money for down payments and multiple co-borrowers).
There was no such animal as a credit score for mortgages backed by Fannie Mae or Freddie Mac until about 1995. Well, it’s back to the future. Good going Fannie Mae.
On June 25, Fannie Mae will be rolling out the automation of a manual process for mortgage applicants without credit scores, according to Mindy Armstrong, senior product manager at Fannie Mae.
Here’s how it will work: A loan officer takes your application and runs your credit, but the credit bureaus Equifax, Transunion and Experian have no credit scores for you. This usually happens because you don’t have any or don’t have enough traditional credit (credit cards or auto financing, for example).
In the past, that meant that we loan officers were unable to qualify you for a loan backed by Fannie Mae. But in seven weeks, you will qualify, opening up a vast new array of borrowing options.
You are eligible for purchase as well for a no cash-out refinance loan if the lender can gather at least two pieces of credit information that covers the last 12 months. One must be a verification of rent. The other can be anything from a utility bill to on-time payments to your local gym.
You must put a minimum of 10 percent down (or have 10 percent equity when refinancing), all of which can be a gift. It has to be a single unit primary residence and, for Orange County, your loan amount cannot exceed $417,000.
Call me cynical, but I think credit scoring is just a “gotcha” way for creditors in general to upcharge borrowers that don’t have the very best credit scores.
“Thirty percent of bureau data is inaccurate,” said Stan Baldwin, chief operating officer at Garden Grove-based credit report seller Informative Research.
Where Fannie’s no-score gets ugly is the pricing. Fannie Mae is going to assume that your credit score is in its lowest allowable FICO score bucket of 620. That adds 0.625 percent to your mortgage rate for well-qualified borrowers.
“We price for the risk,” said Andrew Wilson, Fannie Mae spokesman.
Out of all seven mortgage insurance companies, so far only Radian and Arch told me they are willing to insure these loans.
Radian’s pricing looks very competitive compared to other standard mortgage insurance rates, adding 1.10 percent to your base interest rate. They also assume a 620 middle FICO score. Arch pricing was not available.
Assume you buy a $450,000 home and get a $405,000, zero-point 30-year fixed-rate mortgage at 4 percent, with a homeowner’s association fee of $350 a month. Your total payment with impounds would be about $3,159.
None of my piggy-back lenders (avoiding mortgage insurance by providing a 10 percent second behind an 80 percent first mortgage) will go behind a no-score loan. At a minimum, a 680 middle score is required.
Fannie needs to rethink their one size fits all pricing. They assume all no-score borrowers are high risk, just like the “before score” olden days.
They should consider job stability, cash reserves, and payment shock (industry jargon for how much your house payment will go up from your current rent).
Better risk borrowers deserve better pricing, score or not.
Do you buy anything that’s cheap(er), figuring that the demand will become unglued and prices continue racing towards the sky – or sit this one out? P.S. Three offers are in on Cherokee, and more expected.
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.
Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.
Obama pledged in his State of the Union address to do more to make sure more Americans can enjoy the benefits of the housing recovery, but critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars.
“If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae.
Our cruise around the world looking for similar real estate markets has to include a stop Down Under, where the auction format to sell homes and the lack of capital-gains tax on seller proceeds from the sale of their primary residence has to add extra juice. Add in some mortgage funny business….and well, these guys think there’s a bubble:
Bronte Capital’s chief investment officer John Hempton and economist Jonathan Tepper (founder of research house Variant Perception) toured suburbs across north-west and south-west Sydney to view housing developments and met with 20 mortgage brokers three weeks ago.
They discovered that mortgage brokers were advising them to lie on loan application documents about the deposit for a house and about income, the Australian Financial Review (AFR) reported.
Mr Tepper has also used charts to support his housing bubble theory.
When the pair asked banks to call their employer, ‘both reputable and disreputable brokers said banks rarely verified payslips,’ Mr Tepper wrote in a report.
They also encountered developers lying about units and houses being sold in the west, the ‘epicentre’ of the housing bubble.
To Mr Tepper’s surprise, some of Sydney’s poorest suburbs, such as Blacktown, Rooty Hill and Mount Druitt in Sydney’s west had properties selling from $500,000 to $700,000 – prices at least eight times the income of local workers.
‘The further west I went, the more irrational it felt. Lots and lots of supply and prices that bore no resemblance to construction cost and income of people around there,’ Mr Hempton told AFR.
There were more advertisements for deposit guarantees, where rather than putting a deposit down on a house you can take out an insurance contract that will pay the deposit if you default.
Another shocking revelation was that the verification of documents was sometimes done by Indian call centres, according to Mr Hempton.
On loan applications low-income earners were often offered discounts on the advertised mortgage rate of up to a one percentage point, increasing the vulnerability of the banks if there were a correction.
Mr Hempton claims they were ‘coached on how to get things through banks’ as opposed to banks having high quality underwritings.
In Mr Tepper’s report, he warns of sharp fall in Australian bank stocks and predicts falls in the Australian housing market of up to 50 per cent in Sydney and Melbourne and of about 80 per cent in mining towns.
We saw how crowdfunding could be a new (and bubblicious) way to finance home purchases. Here’s one of the old ways – non-profits getting involved that are well-funded today, but…..Hat tip to Susie for sending in this story:
Bank of America Corp. is rolling out a new-mortgage product that would allow borrowers to make down payments of as little as 3%, in a move that would represent an end run around a government agency that punished the bank for making errors on similar loans.
The new mortgage program, which the Charlotte, N.C.-based lender plans to unveil on Monday, will let borrowers avoid private mortgage insurance, a product to protect mortgage lenders and investors that is usually required for low- down-payment loans.
Bank of America’s new mortgage cuts the FHA out of the process. Instead, the new loans are backed in a partnership with mortgage-finance giant Freddie Mac and the Self-Help Ventures Fund, a Durham, N.C.-based nonprofit.
Bank of America agreed to pay $800 million to settle claims of making errors on FHA-backed loans in 2014. This month, Wells Fargo & Co. said it would pay $1.2 billion to settle similar claims, joining J.P. Morgan Chase & Co., which settled in 2014, and other big lenders which have settled over the past few years. Nonbank lender Quicken Loans Inc. is currently fighting such claims.
Many big banks have pulled back sharply from FHA-insured lending in the past few years, citing the risk of being hit with penalties for minor errors. A raft of nonbank lenders have rushed in, but the banks’ retreat from the program has made it more difficult for low-income borrowers to get home loans.
“We need an alternative in the marketplace that helps creditworthy borrowers with a track record of paying debts on time,” said Bank of America managing director D. Steve Boland, who noted that “We think there are still a lot of uncertainties out there in working with FHA.”
After making a mortgage under the new program, Bank of America will sell it to Self-Help, which then sells it to Freddie Mac. If a mortgage defaults, and Self-Help isn’t able to recover the full amount owed, Self-Help takes a big chunk of the losses before Freddie Mac starts to take a loss, which lets borrowers avoid paying mortgage insurance.
Self-Help also gives counseling to borrowers who struggle to pay, which it believes will help more people avoid foreclosure.
“We believe the mortgage-lending sector is underserving families of modest means,” said Self-Help CEO Martin Eakes. Mr. Eakes said that his fund also is in talks with other large and small lenders to roll out similar programs.
Mr. Eakes said Self-Help didn’t need new funding for the Bank of America program, but in the past the organization has received funding for other loan programs from foundations, the government and companies.
Mr. Eakes is also CEO of the Center for Responsible Lending, a nonprofit advocacy group for borrowers that in the past has also asked the FHA to limit lenders’ damages for some errors.
To get the loans under Bank of America’s new program, borrowers must have a credit score of at least 660, which is higher than FHA’s requirement, and an income that is less than the area’s median.
Bank of America said that for now it is capping loan production at $500 million annually under the program and that it expects that three out of four mortgages in the new program would have otherwise been backed by the FHA.
Last year, Bank of America made $1.36 billion in FHA-backed loans, according to trade publication Inside Mortgage Finance, making it the 22nd biggest FHA lender. The bank used to be in the top 10.
Freddie and competitor Fannie Mae in 2014 said they would roll out mortgages with down payments of as low as 3% to improve mortgage availability for low-income borrowers. But because the mortgages often cost more than FHA-backed loans, the programs had little volume last year.
As lenders become more wary of the FHA program, lenders and Fannie and Freddie executives said that their programs’ volume could rise.
Housing affordability has become a big problem in many major metros in the country. In fact, many middle-class buyers can no longer afford a new home. Consider the following:
Price/income. Home price to median income ratios exceed the historical average for all 20 of the largest housing markets in the country.
Payment/income. Payment to income ratios exceed the historical average in the majority of the 20 largest housing markets in the country.
New home prices. New home prices exceed resale home prices by record levels, and not just because new homes are larger and better located than usual.
Anticipation of rising rates. Bond markets currently assume that long-term rates will rise over the next few years, putting additional upward pressure on home prices.
Strong wage growth seems to be right around the corner, which will help affordability. Incomes should rise steadily over the next few years due to demand for high-income workers and a shortage of workers overall.
Job growth remains healthy in most markets, especially in high-income jobs. High-income job growth has recently emerged as a primary driver of new home demand, particularly in higher-priced markets. Nationwide, high-income jobs are up 2.6% year over year. However, growth in high-income sectors has played out very unevenly across the major metros.
In fact, CSC does not use the term subprime. According to Will Fisher, SVP of sales and marketing, at CSC “Subprime is offensive.” CSC has coined a more apt descriptive word for of this part of the mortgage world, “non-prime.”
“People have been hesitant to make this kind of loan since 2008 and even wondered how we could even fund them,” said Fisher. “Even now people ask how we are making these loans. The truth is, subprime is not a four-letter word. And non-prime is an even better description of what is occurring since 2011-12 in this loan type.”
CSC created a loan program four years ago that allows self-employed borrowers to document their income using bank statements instead of tax returns like 1040s or 1099s. The company requires two years of bank statements to validate cash flow and thus extrapolate income. This gives the company critical insight into a borrower’s ability-to-repay (ATR).
“We believe that 24 months of continuous bank statements are a very reliable look into what a person actually lives on per month when compared to tax returns or even a W-2s,” Fisher said. “Because these borrowers are self-employed, they want the benefits that come with the legal ability to write off expenses. That can make the use of tax returns as conventionally underwritten a poor barometer of ability to repay, but we’re able to document income in a different way. And we stay in the spirit of ATR and QM loans by requiring a two-year history.”
CSC offers up to 90% LTV for self-employed borrowers with a 700 credit score and up to 80% LTV for a credit score of 600 or higher (the typical threshold for subprime is 620). This program has huge potential for growth since many of the 14.6 million people who are self-employed may not qualify for a traditional QM loan, even with a high credit score and adequate income.
Braoden mortgage access to those who don’t have a credit score? Counting income from those not on the loan? Traditionally, the term ‘family member’ has been a loosely-defined concept in mortgage qualifying. From the wsj.com:
Collecting pay stubs for a home-mortgage application has been a time-honored tradition, barring a few ill-fated years running up to the financial crisis. But if changes announced by mortgage-finance company Fannie Mae catch on, that process could go the way of the dodo.
Fannie Mae on Monday said it would allow lenders to use employment and income information from a database maintained by credit bureau Equifax to verify borrowers’ ability to handle a loan, rather than relying on the traditional documentation process of collecting physical copies of pay stubs and tax data. The move is expected to make the mortgage process easier for borrowers and lenders alike.
Fannie announced other changes it said could broaden mortgage access for some borrowers.
The mortgage giant will ease the lender process for granting loans to borrowers who don’t have a credit score, a key issue for advocates for certain minority groups that are less likely to have traditional credit histories.
Likewise, Fannie in mid-2016 also will require lenders to begin collecting “trended” credit data from Equifax and TransUnion, which includes longer-term borrower credit histories.
In August, Fannie rolled out a new program that let lenders count income from nonborrowers within a household, such as extended family members, toward qualifying for a loan.
But for more than a year, some advocates and industry groups also have pushed the Federal Housing Finance Agency, which regulates Fannie and Freddie, to allow the companies to use alternative credit-score models that take into account utility or rent payments.
I saw these questions from Ed DeMarco on Twitter. My answers:
1. Have the M.I.D. apply towards primary residence only (not second homes), and lower from $1,000,000 to $500,000. Those buying in hopes of a bigger write off will still buy a house, and take the partial benefit – and be in it for the appreciation and to raise a family (make wifey happy).
2. Have the mortgage interest deduction be in effect for the first ten years of ownership only. It would encourage borrowers to pay off mortgages in the ten years, and not refinance every year.
3. Require that only the buyers can pay for mortgage insurance (sellers can pay in full now).
4. Redirect the disadvantaged folks to subsidized rentals until they aren’t disadvantaged. Only stable, secure, affluent people should buy a house – it’s too late for the rest, unless they drive to the suburbs/outer edge of town.
5. There are several loan programs available to help the disadvantaged already. NACA is still around, helping buyers purchase with no down payment and no closing costs (H/T daytrip):
6. Lower the capital-gains tax for 1-2 years to incentivize those reluctant-but-motivated possible sellers to unload a rental property or two. Cut federal rate to 10% for the first year (currently 20%), and then back to 15% in the second year. The crotchety old guys still won’t sell, so there won’t be a flood. But more inventory = more sales while stabilizing prices.
7. Keep Fannie/Freddie the way they are for now. If they can keep operating in the black, let’s allow the mortgage industry to enjoy the fluidity. I attended a seminar today on the new loan disclosures coming on October 3rd, and it is clear that Fannie/Freddie will be extremely strict on compliance. It doesn’t mean tougher credit, it means the mortgage industry needs to submit the cleanest loan packages ever – which is good for the taxpayers.
8. The new compliance crunch will virtually eliminate mortgage brokers – wholesale lenders won’t want to take a chance on them. Yes, we still have room for you over here to be a realtor – there’s only 11,000 of us chasing 3,500 sales each month.
9. Encourage a private jumbo-MBS market without subsidizing it. Eventually, a private MBS marketplace could help shift the burden from Fannie/Freddie.
10. Run a tight ship. We can handle it.
The powers-that-be have made some great moves to get us this far, now bow out gracefully and let free enterprise take care of the rest.
