Monthly Archives: June 2013

College debt is making it tougher for young people to buy starter homes

They’re not yet an endangered species, but their steadily diminishing presence has some real estate analysts worried: First-time buyers are missing in action in housing markets across the country.

Traditionally, first-timers have accounted for around 40 percent of purchases in the resale market. But in May, according to the National Association of Realtors, they were just 28 percent, down from 29 percent in April and 34 percent a year ago.

Big deal? Yes. If predominantly young, first-time purchasers are not entering the homeownership pipeline at anywhere near their traditional rate, at some point the system begins to choke. Owners of modest-priced starter homes find it more difficult to sell and move up. They in turn can’t buy the larger homes they crave, reducing demand for houses in the more expensive categories. A shortage of first-time buyers at the intake level eventually triggers problems all the way up.

Where are these previously dependable first-time home buyers in their late 20s and early 30s? A new national study released last week offers important clues: A lot of them are carrying such heavy debts from student loans that they’re postponing buying houses.

Researchers for the One Wisconsin Institute found that the rate of homeownership among individuals who are paying off student loans is 36 percent lower than their peers who have no student debt. The disparity can be seen at all income levels. Among individuals who earn $50,000 to $75,000 a year, those who are still paying down student loans have a 28 percent lower rate of homeownership compared with others in the same income group.

Bulging student-loan balances aren’t short-term issues, either. The institute’s study found that the average payoff time is 21 years, ranging from 17 years for those who attended college but did not get a degree to 23 years for those with graduate degrees.

Worse yet, student loans are exhibiting high default rates — currently, about 13.4 percent. That depresses credit scores and makes it more difficult to qualify for a mortgage under today’s toughened underwriting standards, where average FICO scores for buyers using conventional mortgages top 760.

Even financial regulators are now acknowledging the troubling linkage between student-debt loads and declining home purchases. In a recent report, researchers at the New York Federal Reserve said heavy student-loan balances that limit access to credit “may have broad implications for the ongoing recovery of the housing and vehicle markets, and of U.S. consumer spending more generally.”

Total outstanding student debt now exceeds $1.1 trillion. Debt loads for recent graduates average just under $27,000, but an estimated 13 percent of outstanding balances range from $54,000 to $100,000.

Student debt troubles are hardly the only barrier keeping first-timers out of the market, however. Stan Humphries, chief economist for Zillow, the online real estate site, says there are three additional important reasons behind the trend:

●High down payment requirements for conventional loans, averaging just below 20 percent. The Federal Housing Administration’s lower down payment options are attractive, but recent premium hikes can make FHA loans more expensive than competing conventional mortgages.

●Persistent negative equity problems among the owners and potential sellers of the lower-priced start-up homes that first-time buyers traditionally could afford are keeping those properties off the market because owners don’t want to take a loss at settlement. Roughly 43 percent of owners in the 35-to-39 age bracket are still underwater on their mortgages, nearly double the rate for homeowners overall.

●Cash-rich investor competition. For those affordable homes that do come on the market, first-time buyers frequently are losing out to investors who can pay hard cash, with no financing contingencies.

Problems like these aren’t likely to go away anytime soon, Humphries believes, but they might improve gradually. For example, financing terms might loosen up as interest rates rise and lenders who have been feasting on refinancings are forced to reach out to purchasers — including first-timers — with more-favorable deals. Similarly, as home prices rise, investors are likely to cut back on purchases of starter homes they turn into rentals, thereby opening new doors for first-time buyers.

Student debt burdens are a much tougher nut, though. Until the unrelenting increases in higher education costs get under control, it just may be that some first-timers will have to enter the market later than they have done traditionally.


Mortgage Rates Fall at Fastest Pace in June

Mortgage rates added a second day of improvement to yesterday’s more tentative gains, falling just slightly faster than any other day this month. While the improvements scarcely make a dent in the recently severe collection of losses, they’re part of the consolidation that would necessarily precede any attempt to bounce back. The question remains whether or not such a bounce back is in the cards, and that may not get a fully informed answer until next week. That doesn’t mean we can’t improve in the short term, however, and today is evidence of that as 30yr Fixed best-execution fell out of 4.75’s reach and is once again centered on 4.625%.

Markets were somewhat motivated by today’s GDP data, but we saw plenty of evidence of the bigger picture ebbs and flows being in place regardless of data. That evidence points to the consolidation that’s taking place heading into the last trading day of the quarter on Friday. The economic data can still play a part in pushing rates higher or lower within that bigger range, but that range is more likely to define the highs and lows that are possible for the rest of the week. The conclusion is that we’re temporarily in the most balanced position we’ve seen since before the FOMC events that kicked off all the nastiness.

This doesn’t necessarily mean we’ve turned the corner, but we have leveled off for now. For safety seekers, this is a good opportunity to lock. For risk takers, this is sets up a baseline from which to take more risk, provided you lock if rates move back to yesterday’s levels or above. Unfortunately in this environment, those levels could be overshot significantly with one rate sheet. For those of you simply watching rates and “hoping” for an improvement, there is still some hope, but markets are still clearly being cautious about next week’s Jobs report, and barring the unforeseen, don’t look eager to undertake a significant correction before then.

cited from Matthew Graham.
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Don’t be fooled by mortgage rates “Dipping” !

Make no mistake about it, Mortgage rates are going up this year. The consensus is that we will see a minor dip shortly and then another possible spike (BY THE WAY, THIS IS ALL SPECULATION). This being said, if you get the payment you are comfortable with, LOCK IN THAT RATE !!! Don’t let greed get to you, as we have seen, RATES can shoot up DRASTICALLY in a matter of days, hours and YES even MINUTES. Call for a free rate analysis or to see what your current rate would, should, could BE.

Say goodbye to ultralow mortgage rates

Mortgage rates spiked over the past week, causing some to believe the ultralow rates of recent years could be gone for good. What’s more, rising rates could put a damper on the improving housing market.

The 30-year fixed-rate mortgage averaged 3.93% last week, according to Freddie Mac’s weekly survey of conforming mortgage rates. But the results to be released this Thursday could very well shock the average mortgage shopper, as the average rate for the 30-year mortgage could move closer to 4.5%—or maybe even higher than that, said Dan Green, loan officer with Waterstone Mortgage in Cincinnati.

“Since Wednesday morning [June 19], pricing is worse by roughly four points. This means that last week’s zero-point rate of 4.25% would require four discount points today,” Green said. A point is 1% of the mortgage amount, charged as prepaid interest.

“Since May 1, rising mortgage rates have reduced the purchasing power of U.S. home buyers by 18%,” he said.

Surveys by pegged the conforming 30-year fixed-rate mortgage at 4.56% on Tuesday, said Keith Gumbinger, vice president of the consumer loan information firm. That’s up from 4.33% on Friday.

Mortgage rates started rising last week, after Federal Reserve Chairman Ben Bernanke spoke of the Fed’s intention later this year to scale back the stimulus program that kept rates low. Rates jumped again over the weekend, a reflection of the unsettled market.

Gumbinger said it’s likely the market overreacted and that mortgage rates could move downward. But it’s probable that very low rates are gone for good. “Do I think we’re going back to 3.5%? No. Do I think we should be closer to 4% than 4.5%? Probably,” he said.

Even if market did overreact, it doesn’t necessarily mean that rates will reverse, Green said. “Mortgage rates are trading on fear and sentiment, and right now those forces are pulling rates higher.”

What it means for housing
The rate spike reduces the number of people who could benefit from a refinance. When people save on their mortgage each month, that extra money in their pockets can be spent elsewhere, also helping the economy.

But the new concern, Gumbinger said, is how much rising rates will affect the housing market recovery.

Even assuming a 30-year mortgage with a 4.33% rate, the monthly payment on a median-priced existing home has risen by 11% from the low at the beginning of May, Gumbinger figured. That also assumes a 20% down payment. The median-priced existing home was $208,000 in May, according to the National Association of Realtors.

“Active home buyers, and there are a lot of them, are finding that their purchasing power has decreased,” Green said. “It’s not enough that there’s a race to beat rising home prices, but there’s a race to beat rising interest rates.” Prospective buyers may now need to make new choices between amenities, or in the size of house that they can afford, he said.

Borrowers on the cusp of affordability to begin with could become priced out of the market in a rising-rate environment, Gumbinger said.

The effect of higher mortgage rates may show up in housing statistics in the months ahead, Gumbinger said.

Recent housing news has shown a market clearly gaining steam, with existing-home sales and new-home sales on the rise and home prices up, but those statistics reflect what happened a month or more ago, Gumbinger said. The most recent S&P/Case-Shiller Home Price Indices, for example, reflect sales from April, when mortgage rates were declining, he said.

Rates still low
Still, those in the market for a mortgage need to keep the recent movement in rates in perspective.

“We haven’t seen rates spike like that in a long time,” said Rick Allen, chief executive of, a mortgage shopping website. But it could be much worse. If rates on the 30-year fixed-rate mortgage were to jump to 5% or 6%, the effects on the market would be much more pronounced, he added.

Rates in the mid-4% range aren’t at all high by historical standards.

“The lowest average rate the market achieved on its own [without Fed intervention] was 5.24% in June 2003. It was a 37-year low at the time, and it was widely celebrated,” Gumbinger said.

“You tell someone [it’s] 5% today, and they freak out,” he added

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New Home Sales Rise 2.1% Last Month, 29.6% Higher than May 2012

Newly constructed home sales rose 2.1 percent in May to a seasonally adjusted annual rate of 476,000 units. The U.S. Census Bureau and the Department of Housing and Urban Development also revised the April sales estimate from the 454,000 units originally reported to 466,000. May new home sales were at a rate 29.6 percent higher than the annualized pace of 369,000 units reported in May 2012.

The median price of a home sold in May was $263,900 and the average sales price was $307,800. The median price one year earlier was $239,200 and the average was $280,900.

At the end of May there were 161,000 new homes for sale compared to 157,000 at the end of April and 144,000 one year earlier. The report estimates that the supply of homes provide an inventory of 4.4 months at the current rate of sales, up slightly from a 4.0 months supply in April.

There were 45,000 homes sold compared to 46,000 in April and 35,000 in May 2012. There were 14,000 completed homes sold and 16,000 for which construction had not yet begun.

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ABA: Revise Mortgage Rules to Avoid Harming Creditworthy Borrowers

The American Bankers Association testified today that the new Ability to Repay and Qualified Mortgage rule should be revised to avoid harming creditworthy borrowers that want to own a home and undermining the housing recovery.

James Gardill, chairman of the board of WesBanco, testified on behalf of ABA before the House Financial Institutions Subcommittee. WesBanco is a community bank in Wheeling, W.Va.

In his testimony, Gardill emphasized that the new rules represent a fundamental change in the housing-finance market, which comprises a substantial portion of our nation’s GDP and touches the lives of nearly every American household.

“Despite the good intentions behind the QM rules, as currently designed, these rules will restrict, rather than facilitate credit to mortgage borrowers, most particularly borrowers on the margins,” Gardill said. “These rules need to be revised so that they help the economy and at the same time ensure the largest number of creditworthy borrowers are able to access safe, quality loan products.”

Under the ATR rule, underwriters must consider a borrower’s ability to repay a mortgage loan, which is a subjective determination based upon a number of variable factors. Qualified mortgages are designed to offer a “safe harbor” within which loans are assumed to meet the ATR requirement. Gardill testified that the definition of QM, along with compliance and legal risks, could significantly harm the mortgage market.

“The definition of QM – which covers only a segment of loan products and underwriting standards, and serves only a segment of well-qualified and relatively easy-to-document borrowers – could undermine the housing recovery and threaten the redevelopment of a sound mortgage market,” Gardill said. “Given the legal and reputational risks imposed by this regulation, banks are not likely to venture outside the bounds of the QM safe harbors.”

Gardill testified that the new rules create a narrowly defined box that consumers must fit in to qualify for a QM-covered loan, limiting access to mortgage credit.

“Since banks will make few, if any loans that do not meet QM standards, many American families that are creditworthy but don’t fit inside the QM ‘box’ will be denied access to credit,” Gardill said. “In practice, this also likely means that less affluent communities may not be given the support they need to thrive. These rules may leave many communities largely underserved in the mortgage space.”

Gardill expressed concern that the rulemaking has left banks with little time to comply with QM regulations despite their wide-reaching market implications and the tremendous amount of work required to comply with the rules. Currently, these rules are scheduled to go into effect in January 2014.

“We must get this right for the sake of our customers, our banks’ reputations, and to promote the nascent recovery of the housing market,” Gardill said. “For some institutions, stopping any mortgage lending is the answer to this unreasonable deadline because the consequences are too great if the implementation is not done correctly. We need to extend the existing deadlines as well as address outstanding issues to ensure that all creditworthy borrowers have access to credit.”

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Exploring expired listings can be the basis of anyone’s specialty in the real estate industry. You can create a process that will give you repeatable results for your effort. Let’s look at these three very positive characteristics in prospecting expired listings.

They are easy to find: Expired listings come up everyday, so you will always have plenty that you can work with on a weekly basis. They provide a steady stream of new leads to contact for listing appointments. There are also usually a few very heavy days each month. You will need to set your schedule to take advantage of these heavy days. The end of the month is one of the heaviest times for expired listings; up to 25 percent of the expired listings for the month may occur in just one or two days.

They want to sell: Expired listings were on the market at one time, unlike many other types of clients you will contact. The owners had a plan laid out to sell and move. Unfortunately, their plan did not work out, but, in most cases, they wish it had. There will be some expireds that were listed by clients who are now tired of the process, but the majority of them still want to sell. The bulk of them are looking for an Agent: If the prospect still has the desire to sell, as most do, then they are searching for a new Agent. They are looking for someone who can solve their previous problem. Most do not know why their home did not sell, but they are frustrated with their previous Agent and sometimes all Agents. They will rarely return to their previous Agent. The successful way to work expired listings is the CAP system: Consistency Attitude Persistence The first part is consistency: You must consistently work expired listings. For you to achieve a large return on your time invested, you must work diligently for a minimum of four weeks straight. Expired listings cannot be started and stopped without losing momentum. There is a rhythm and a flow to them. They must be a daily discipline that you work on. If you prospect them for two weeks, then take a week off, you are back to zero. I did not prospect weekends, but I did diligently call Monday through Friday. Your leads must build, and your follow-up must grow. When you get down the road 30 plus days, you will begin to receive calls for listing appointments from your work earlier in the month as well as your appointments from new expireds. You must work to create a pipeline of expired listing clients.

The second part is attitude: Your attitude plays a crucial role in your success working with expired listings. You need to convey to the seller an attitude of compassion and problem solving. They are not just looking for someone to pound a sign in the ground; they are looking for someone to get their home sold; they are looking for someone to solve their problem. They can get even more resentful due to the high volume of Agents that may call them. Many expireds feel that everyone else is the problem, when it is actually them and their price. When it comes to expired listings, price is the problem 90% of the time. You have to read the people you are meeting with regarding their home. Too many Agents who work with expired listings hit their prospective clients with a ball peen hammer between the eyes when it comes to the price. That will work with some and will fail miserably with others. You must be able to adjust your delivery. You need to read the prospective clients, and, most importantly, you need to exude an attitude of caring and compassion for their situation, while conveying confidence in your ability to get the job done. Sometimes, the only way to get the price down is to convince them you care, and it pains you that they have to sell for less, but there is no other way. It is like the doctor who tells his patient she has cancer. He does not like it, but he has to do it, so he can cure her.

The last, and at times most critical, is persistence: Your persistence or ability to stick with it can have the most positive results of all. Many expired listings do not set appointments right away with Agents. Sellers will wait a week or two, maybe even a month. The number of calls they receive about their home drops dramatically as the weeks tick by. Do not be one of the Agents who drop off unless the sellers have low motivation or are unreasonable. Be one of the ones left standing at the end of a week or two.

Be persistent in your calling. Call them a few times a week. All you are doing is trying to set an appointment. You are not doing a listing appointment over the phone; just close for an appointment. That is what the call is for. You just want to be one of the three or four they interview. If you keep that as your goal, you will get plenty of salable listings.

Focus on the CAP system daily. Work both today’s expired listings, and the ones you gathered in the past. Effectively follow-up with your hot leads daily.

Remember consistency, attitude, and persistence are the keys to prospecting expired listings.

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Friday’s Lowest Prices in Line With Today’s Highest

MBS Live: MBS Morning Market Summary

For Fannie 3.5s and 10yr Treasuries, the trading levels that finally offered support at the end of Friday’s sell-off, have turned into resistance so far this morning. More simply put, Friday’s floor is today’s ceiling for MBS (or vice versa for Treasuries). Not that it’s much of a consolation, but Fannie 4.0s (and yes, they’re a part of the production section of the MBS stack now) are currently trading fairly well with respect to Friday’s range, but only after joining 3.5s for brief, scary ride lower into 9:30am. Before then, Treasuries had opened just slightly weaker after a slightly stronger overnight session. Domestic trading brought increased volatility and 10yr yields have been on the ropes over 2.20 since just before the cash open for Stocks. There’s been no relevant scheduled data though S&P (the ratings agency) did upgrade the US sovereign outlook to AA+. This looked to have had a positive effect on equities more than anything, but the stock lever swings may account for some of the more pronounced weakness around 9:30am.

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