Category Archives: Mortgage

Mortgage Refinance Soar 37% To Highest Level Since Mid-2016 As Mortgage Rates Plunge: Purchase Applications Rise Only 1.9%

Ah, to be a mortgage banker doing refinancings as the global economy grinds to a halt.

According to the Mortgage Bankers Association, refinancing applications rose 37% week-over-week (WoW).

Refi applications have soared to their highest level since mid-2016 as mortgage rates plunge.

Mortgage purchase applications have not been the same since lenders tightened their lending standards and banks increased capital ratios. Not to mention the creation of the Consumer Financial Protection Bureau.

As the NY Fed. pointed out, housing debt is almost back to its prior housing bubble peak of $10 trillion.

Phoenix AZ leads the nation in QoQ mortgage debt growth. Why? A rebound effect in the lower tier of Phoenix home prices.

Source: Confounded Interest

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FHA Eases Condo Rules, Expanding The Purchase And Reverse Mortgage Market

Through a new rule announced Wednesday, the Federal Housing Administration (FHA) is making it easier for aspiring entry level housing buyers and condo owners to get reverse mortgages with FHA insured financing. 

The FHA published a final regulation and policy implementation guidance this week establishing a new process for condominium approvals which will expand FHA financing for qualified first time home buyers as well as seniors looking to age in place, the Department of Housing and Urban Development said in a press memo. 

In a stated Trump Administration effort to “reduce regulatory barriers restricting affordable home ownership,” the new rule introduces a new single-unit approval procedure that eases the ability for individual condominium units to become eligible for FHA-insured financing. It also extends the recertification requirement for approved condominium projects from two years to three.

The rule will also allow more mixed-use projects to be eligible for FHA insurance, the department said in a press release. HUD Secretary Ben Carson touted the rule’s ability to assist both first-time home buyers, as well as seniors aiming to age in place.

“Condominiums have increasingly become a source of affordable, sustainable home ownership for many families and it’s critical that FHA be there to help them,” said Carson in a press release announcing the new rule. “Today, we take an important step to open more doors to home ownership for younger, first-time American buyers as well as seniors hoping to age-in-place.”

Acting HUD Deputy Secretary and FHA Commissioner Brian D. Montgomery added that this rule is being implemented partially in response to the demands of the housing market.

“Today we are making certain FHA responds to what the market is telling us.
Montgomery said in the release. “This new rule allows FHA to meet its core mission to support eligible borrowers who are ready for home ownership and are most likely to enter the market with the purchase of a condominium.”

The last notable action taken by FHA in terms of condominium approvals took place in the fall of 2016, when the agency proposed new rules that would allow individual condo units to become eligible for FHA financing, including Home Equity Conversion Mortgages (HECMs).

FHA estimated this new policy will notably increase the amount of condominium projects that can now gain FHA approval. 84 percent of FHA-insured condominium buyers have never owned a home before, according to agency data. Only 6.5 percent of the more than 150,000 condominium projects in the United States are approved to participate in FHA’s mortgage insurance programs.

“As a result of FHA’s new policy, it is estimated that 20,000 to 60,000 condominium units could become eligible for FHA-insured financing annually,” the press release said.

Read the final rule in the Federal Register.

Source: by Chris Clow | Reverse Mortgage Daily

Negative Rate Home Mortgages Rolled Out In Denmark

A bank in Denmark is offering borrowers mortgages at a negative interest rate, effectively paying its customers to borrow money for a house purchase.

denmark little mermaid

Copenhagen’s famed Little Mermaid statue, one of Denmark’s best-known attractions – News Oresund/Flickr

Jyske Bank, Denmark’s third-largest bank, said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of -0.5%, meaning customers will pay back less than the amount they borrowed.

To put the -0.5% rate in simple terms: If you bought a house for $1 million and paid off your mortgage in full in 10 years, you would pay the bank back only $995,000.

It should be noted that even with a negative interest rate, banks often charge fees linked to the borrowing, which means homeowners could still pay back more.

“It’s another chapter in the history of the mortgage,” the Jyske Bank housing economist Mikkel Høegh told Danish TV, according to the news website Copenhagen Post. “A few months ago, we would have said that this would not be possible, but we have been surprised time and time again, and this opens up a new opportunity for homeowners.”

Jyske Bank’s negative rate is the latest in a series of extremely low interest offers from banks to Danish homeowners.

According to The Local, Nordea Bank, Scandinavia’s biggest lender, said it would offer a 20-year fixed-rate mortgage with 0% interest. Bloomberg reported that some Danish lenders were offering 30-year mortgages at a 0.5% rate.

It should also be noted that negative rates have been available on short-term mortgage bonds in Denmark since May, according to Bloomberg; they have only just been made directly available to consumers.

“It’s never been cheaper to borrow,” Lise Nytoft Bergmann, the chief analyst at Nordea’s home finance unit in Denmarktold Bloomberg.

It may seem counterintuitive for banks to lend out their money at such low rates — but there is a rationale behind it.

Financial markets are in a volatile, uncertain spot right now. Factors include the US-China trade warBrexit, and a generalized economic slowdown across the world — and particularly in Europe.

Many investors fear a substantial crash in the near future. As such, some banks are willing to lend money at negative rates, accepting a small loss rather than risking a bigger loss by lending money at higher rates that customers cannot meet.

“It’s an uncomfortable thought that there are investors who are willing to lend money for 30 years and get just 0.5% in return,” Bergmann said.

“It shows how scared investors are of the current situation in the financial markets, and that they expect it to take a very long time before things improve.”

Source: by Will Martin | Business Insider

Easy Money Blog Observations:

This doesn’t mean borrowers are being paid to take mortgages.

Jyske Bank appears to describe in the attached press release that they add a 1% “variable contribution rate” + fees to a -0.5 negative “bond rate”, resulting in borrowers qualifying to pay a positive amortized rate over a maximum 10 year period, plus taxes and insurance, to 80% loan to value at closing.

Most home buyers are unable to qualify for a ten year mortgage with 20% down. This means the program is being targeted to existing equity rich homeowners interested in cash out mortgages. 

https://www.jyskebank.dk/bolig/nyheder/realkredit-med-negativ-rente

 

Courts Finally Force California To Repay $331 Million Stolen From Mortgage Relief For Homeowners

(John Myers) Gov. Gavin Newsom’s administration said Friday it would begin work on transferring $331 million back into a special fund designed to help California homeowners hit hard by the recession-era mortgage crisis, money that the courts have ruled was wrongly used to help balance the state budget.

The California Supreme Court refused earlier this week to hear an appeal by the administration disputing lower court rulings that found the state mistakenly used a portion of the money — paid by large banks and lenders as part of a nationwide legal agreement in 2012 — to pay off housing bonds. In some cases, those bonds were enacted a decade before the mortgage settlement. In all, three years of state budget expenses were covered by a portion of what California received from the mortgage settlement.

The decision to use the money was championed by Newsom’s predecessor, former Gov. Jerry Brown. Legislators subsequently ratified the plan, and last year went even further: They passed legislation seeking to block a court ruling to repay more than $331 million into a fund originally designed for statewide homeowner assistance efforts. Groups that waged a five-year court battle over the funds expressed relief that the legal fight was finally over.

“Truth prevails,” said Faith Bautista, president and chief executive of the National Asian American Coalition. “They’re now facing the reality that the money belonged to the homeowners in distress.”

While the money in question was undoubtedly tempting at the time it was diverted — California’s budget was still reeling from successive years of back-to-back deficits — the state’s coffers are now overflowing. The budget signed by Newsom last month includes $19.2 billion in cash reserves, making the repayment of the mortgage settlement money limited only by how fast state leaders can take action. The Legislature will return next month for the final weeks of its 2019 session.

The money diverted to state budget needs was a small portion of what both California homeowners and the government received from the national settlement agreed to by 49 states in 2012. Those states, along with the federal government and the District of Columbia, had earlier filed suit against the nation’s five largest mortgage servicers: Ally (formerly known as GMAC), Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo. The legal action alleged a number of federal law violations, and the financial institutions agreed to pay more than $20 billion to homeowners affected by the mortgage crisis. The companies also agreed to pay the states a total of $2.5 billion.

California’s share of the state payments was $410 million, to be used for a variety of services directed by then-Atty. Gen. Kamala Harris. But most of the money was used instead for budget-balancing items which, while related to housing, were long-term costs that further shrank the funds available for basic government services. A coalition including representatives for Asian American and Latino communities sued the state in 2014 over its decision to use the money to help erase a projected budget deficit. A Sacramento judge ruled for the coalition in 2015 and the 3rd District Court of Appeal agreed with that ruling last year.

State leaders, however, refused to back down. At the end of the 2018 legislative session, lawmakers and Brown crafted a bill that said the money was used correctly, and the enacted law sought to give the Legislature the power to “abrogate,” or revoke, the appeals court order to replenish the spent money.

In April, the same appeals court again rebuked state officials.

“It is the judicial branch that has the constitutional authority to interpret statutes,” the three-judge panel wrote in its ruling, stating that the mortgage settlement “money was unlawfully diverted from a special fund in contravention of the purposes for which that special fund was established.”

On Wednesday, the California Supreme Court refused Newsom’s request to hear the case, allowing the appeals ruling to stand.

“Now that the Supreme Court has issued its decision in this matter, we will move forward to implement the ruling,” said H.D. Palmer, a spokesman for the California Department of Finance.

Bautista, whose Daly City-based group works with low-income communities of color across the state, said she hopes the $331 million will be supplemented by money from the nation’s leading lenders to offer services such as down payment assistance for those who went through foreclosure during the housing crisis and want to again own a home. She said other services, including financial literacy efforts and those helping Californians with low credit scores, should also be considered. And she urged Newsom to make such efforts part of his larger discussion about the state’s housing crisis.

“People are hurting in East L.A., Riverside, the Central Valley,” Bautista said. “Let’s pick what’s best and use the money wisely.”

Neil Barofsky, an attorney who represented the groups that fought the cash diversion in the courts, said it was disappointing that state officials spent so many years on “frivolous appeals,” culminating in what he called the “ginned- up legislative action” last year designed to block repayment of the money and the appeals court ruling.

“We understand it was a desperate time for the state when this happened,” he said. “But once we returned to surpluses, the idea that they would just keep fighting this has been breathtaking.”

Source: by John Myers | Los Angeles Times

ARM (adjustable rate mortgage) Prepayments Are Highest Since 2007

Adjustable-rate mortgage (ARM) prepayments hit their highest levels in 12 years during June, according to new data from Black Knight Inc.

The company also noted that prepays on 2018 vintage loans were up by more than 300 percent over the prior four months. As of June 27, Black Knight estimated there were 1.5 million potential refinance candidates in the 2018 vintage alone, matching the total of potential refinance candidates in the 2013-2017 vintages combined.

“Overall, prepayment activity–largely driven by home sales and mortgage refinances–has more than doubled over the past four months,” said Black Knight Data & Analytics President Ben Graboske. “It’s now at the highest levels we’ve seen since the fall of 2016, when rates began their steep upward climb. While we’ve observed increases across nearly every investor type, product type, credit score bucket and vintage, some changes stand out. For instance, prepayments among fixed-rate loans have hewed close to the overall market average, rising by more than two times over the past four months. However, ARM prepayment rates have now jumped to their highest level since 2007 as borrowers have sought to shed the uncertainty of their adjustable-rate products for the security of a low, fixed interest rate over the long haul.”

Graboske added that “some 8.2 million homeowners with mortgages could now both benefit from and likely qualify for a refinance, including more than 35 percent of those who took out their mortgages just last year. Early estimates suggest closed refinances rose by more than 30 percent from April 2019, with May’s volumes estimated to be three times higher than the 10-year low seen in November 2018.”

Black Knight also reported that approximately 44 million homeowners with mortgages have more than 20 percent equity in their home. With a combined $5.98 trillion, that works out to an average of $136,00 per borrower with tappable equity. While this level is near last summer’s all-time high of $6.06 trillion, Black Knight also observed the annual growth rate slowed to three percent in the first quarter, down from five percent in the prior quarter and 16 percent.

Source: by Phil Hall | National Mortgage Professional Magazine

Wall Street Banks Are Starting To Give Up On Lending To Farmers

After years of farm income falling and the U.S./China trade war now taking its toll on the sector, Wall Street banks look as though they are giving up on lending to farmers, according to Reuters

Meanwhile, total U.S. farm debt is slated to rise to $427 billion this year, up from an inflation adjusted $317 billion just 10 years ago. The debt is reaching levels not seen since the 1980’s farm crisis. 

Agricultural loan portfolios of the nation’s top 30 banks was lower by $3.9 billion, to $18.3 billion between their peak in December 2015 and March 2019. This is a 17.5% fall.

An analysis performed by Reuters identified the banks by their quarterly filings of loan performance with the FDIC and grouped banks that were owned by the same holding company.

The slide in farm lending is happening as cash flow worries surface for farmers. We’ve highlighted numerous instances of farmers under pressure due to the U.S./China trade war and poor conditions, like this report from early June and this report on farmer bankruptcies from May.

Sales of products like soybeans have fallen significantly since China and Mexico imposed tariffs in retaliation to U.S. duties on their goods. The trade war losses exacerbated an already strained sector, under pressure from “years over global oversupply and low commodity prices.”

Chapter 12 bankruptcy filings for small farmers were up from 361 filings in 2014 to 498 in 2018. 

Minneapolis-St. Paul area bankruptcy attorney Barbara May said: 

“My phone is ringing constantly. It’s all farmers. Their banks are calling in the loans and cutting them off.”

At the same time, surveys are showing that demand for farm credit is growing. The demand is most pronounced among Midwest grain and soybean producers. Having fewer options to borrow could threaten the survival of many farms, especially when incomes have been cut in half since 2013. 

Gordon Giese, a 66-year-old dairy and corn farmer in Mayville, Wisconsin, was forced to sell most of his cows, his farmhouse and about one-third of his land last year to pay off his debt obligations. 

He said: 

“If you have any signs of trouble, the banks don’t want to work with you. I don’t want to get out of farming, but we might be forced to.”

Michelle Bowman, a governor at the U.S. Federal Reserve called the decline in farm incomes a “troubling echos of the 1980’s farm crisis”. 

Between the end of 2015 and March 31 of this year, JP Morgan pared back its farm loan holdings by 22%, or $245 million. Capital One’s farm-loan holdings at FDIC-insured units fell 33% between the end of 2015 and March 2019. U.S. Bancorp’s fell by 25%. Agricultural loans at BB&T Corp have fallen 29% since summer of 2016. PNC Financial Services Group Inc has cut its farm loans by 12% since 2015.

The four-quarter growth rate for farm loans at all FDIC-insured banks slowed from 6.4% in December 2015 to 3.9% in March 2019. But many smaller, regional banks depend on farms as the main key to their loan books. 

In March, FDIC insured banks reported 1.53% of farm loans were 90 days past due, up from 0.74% at the end of 2015. 

Curt Everson, president of the South Dakota Bankers Association said: “All you have are farmers and companies that work with, sell to or buy from farmers.” 

Source: ZeroHedge

US Housing Starts (1-unit) Fall 6.4% In May Despite Plunging Mortgage Rates

Despite the hype of soaring mortgage applications (refis, not purchases) and homebuilder stocks, housing starts tumbled 0.9% MoM in May (drastically missing expectations for a 0.3% rise), and while permits rose a better than expected 0.3% MoM, it remains very flat for the last six months.

https://confoundedinterestnet.files.wordpress.com/2019/06/hsfed.png

Multi-family permits fell in May (to 820k) as single-family rose modestly (to 449k)…

https://www.zerohedge.com/s3/files/inline-images/2019-06-18%20%282%29.png?itok=c4P_ZwU9

The better than expected print for overall starts (at 1.294mm), was thanks to a massive spike in rental units…

https://www.zerohedge.com/s3/files/inline-images/2019-06-18_0.png?itok=efCiunLH

Breakdown

  • Housing Starts 1-Unit: -6.4%, from 876K, to 820K
  • Housing Starts Multi Unit: +13.8%, from 383K to 436K 

Not exactly a picture of health for the future of millennial homeownership as rental nation remains front and center, despite plunging mortgage rates.

https://www.zerohedge.com/s3/files/inline-images/bfmD66B.jpg?itok=9EFzUBMM

At least 1-unit starts got one surge from declining mortgage rates in January 2019.

Will The Fed’s Jay Powell come to the rescue? 

Go Jay Powell! Go Jay Powell!

https://confoundedinterestnet.files.wordpress.com/2019/06/jerome-powell-presser-1219-super-tease.jpg

Source: ZeroHedge & Confounded Interest