Monday Morning Cup of Coffee: New lending standards could kickstart mortgages

Clarification to GSE guidelines could give lenders new confidence

Monday Morning Cup of Coffee is a quick look at the news coming across the HousingWire weekend desk, with more coverage to come on bigger issues.

New, easier lending guidelines from Fannie Mae andFreddie Mac go into effect today, and most mortgage lenders plan to take advantage of them, hoping to offset the long-term slowdown in mortgage activity.

The new standards offer clarification on when lenders can be penalized for making mistakes in the mortgage they sell to the government-sponsored enterprises.

Many lenders say the lack of clarity in requirements have made them tighten their own lending rules too much, making it harder for the average buyer to qualify for a home mortgage.

Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, tells the Wall Street Journalthat the changes are “going to be big,” but that it will take time to assess the full impact of the changes.

Analysts say that this move could open the door for hundreds of thousands of new mortgages to be written, or as many as 1.2 million, according to an Urban Institute estimate which compared current standards to historical norms.

Mike Heid, president of Wells Fargo (WFC), the nation’s largest mortgage lender, said the industry would welcome this change.

“It’s providing greater certainty for all the parties so that you can lend more confidently and make the whole judgment process much easier and more clear cut,” Heid said. .

Heid said even though the changes officially start today, mortgage applicants should begin to see faster processing times, reduced credit score requirements, and greater leeway in a few weeks.

“We will be able to be looser and open up the net wider,”Mason-McDuffie Mortgage CEO Bill Godfrey, saying that they will be able to lend to borrowers with credit scores as low as 620 now.

Some lenders don’t expect to loosen credit standards, though, worrying about being on the hook later.

“Unless we are convinced that the rules are going to be permanent and there is not going to be a look back or a reach back in future times…we are simply going to stay on the sidelines,” U.S. Bancorp head Richard Davis said previously.

On Monday, we’ll see consumer spending for November, ahead of the official start to Christmas season. The self-reported consumer spending is a new behavioral economics measure is based on the individual reports of a random sample of American, and gives a clue to as to the direction of the overall economy. The focus is on consumer discretionary spending, including on basics such as gas purchases at the pump and more optional impulse purchases online or in stores. Excluded are routine spending, including the consumer’s monthly bills, and big purchase items such as automobiles and housing.

On Tuesday we’ll see construction spending for October. Construction spending unexpectedly declined in September on public outlays and somewhat on the private nonresidential component.

Private residential spending was a positive for the month. Construction spending declined 0.4% in September after a 0.5% decrease in August. September’s decrease was led by public outlays, which fell 1.3% after a 1.0% drop in August. Private nonresidential spending dipped 0.6%, following an easing of 0.3% the month before.

On a positive note, private residential construction spending rebounded 0.4%, following a decrease of 0.3% in August. And strength was in the new one-family component which advanced 1.1% in September, following a 1.2% gain the month before.

Everyone’s favorite, the Beige Book, comes out on Wednesday. Each Fed district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts. This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy.

These meetings occur roughly every six weeks and are the single most influential event for the markets.

If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace.

And on Friday we’ll see the all-important employment situation report for November. Nonfarm payroll employment advanced 214,000 in October after gaining 256,000 September and 203,000 in August, well below market expectations.

Net revisions for August and September were up 31,000. The median market forecast for October was for a 240,000 boost.

The unemployment rate dipped to 5.8% in October from 5.9% in September. Expectations were for 5.9%. The U-6 underemployment rate declined to 11.5% from 11.8% in September.

This rate is one of Fed Chair Janet Yellen’s favorite labor market indicators.
Going back to the payroll report, private payrolls grew 209,000 after advancing 244,000 in September. Average hourly earnings edged up 0.1% after no change in September. Average weekly hours ticked up to 34.6 hours versus 34.5 hours in September.

No banks failed the week ending Nov. 28, according to the Federal Deposit Insurance Corp.

More homeowners using HELOCs to increase home value

Consumers regain confidence in America’s economy

Not only are home equity lines of credit one of the fastest growing segments in the mortgage market, but borrowers are also wisely investing their money, an article in the LA Times said.

The article explained that HELOC volume during the first half of 2014 was up by 21% compared to the same period a year ago.

Which makes sense, since home prices have been steadily rising over the last year. While the pace of home-priceappreciation may not be as drastic, it is still growing.

So where is all the newly acquired cash going?

Most people aren’t spending their home equity line money on dumb stuff. There’s no evidence of a repeat of the wacky days of the last decade when houses morphed into ATMs and credit lines paid for groceries and nights out on the town.

Slightly more than half of current borrowers say they are using or have used their draw-downs for projects that are likely to increase the market value of their properties — updating kitchens, adding bathrooms, putting on a new roof and similar remodelings.

Other examples included consolidating debts, creating some form of insurance for unforeseeable circumstances and buying new cars.

California October Home Sales

November 13, 2014

An estimated 36,830 new and resale houses and condos sold statewide in October 2014. That was up 1.4 percent from 36,316 in September, and up 1.0 percent from 36,468 sales in October 2013.

Statewide sales have increased slightly on a year-over-year basis for two consecutive months. The October sales tally was the highest for that month in two years. October sales have varied from a low of 25,832 in 2007 to a high of 70,152 in 2003. The October 2014 sales were 14.1 percent below the average of 42,860 sales for the month of October since 1988, when CoreLogic DataQuick data begin. California sales haven’t been above average for any particular month in more than eight years.

The median price paid for a home in California in October was $382,000, down 1.8 percent from $389,000 in September and up 7.0 percent from $357,000 in October 2013. The median sale price has declined slightly month-over-month over the past two months. However, October marked the 32nd consecutive month in which the state’s median price has been higher than a year earlier. Those year-over-year price increases peaked at 29.2 percent in July last year and since then they have gradually ratcheted down, with single-digit annual gains since July this year.

The October 2014 median was 21.1 percent lower than California’s peak $484,000 median reached in March/April/May 2007, and it was nearly 73 percent higher than the post-peak trough of $221,000 in April 2009. (That trough was reached during a period when distressed property sales were at unusually high levels and sales of mid- to high-end homes were at relatively low levels.)

Of the existing homes sold statewide in October, 5.3 percent were properties that had been foreclosed on during the past year. That was down from a revised 5.4 percent in September and down from 6.7 percent in October 2013. Foreclosure resales peaked at 58.8 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 6.1 percent of the homes that resold in October. That was up insignificantly from 6.0 percent in September and down from 10.3 percent in October 2013.

The typical California monthly mortgage payment in October was $1,466, down from a revised $1,515 in September and up from $1,395 in October 2013. Adjusted for inflation, the October 2014 payment was 37.7 percent below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 49.5 percent below the current cycle’s peak in June 2006. It was 55.9 percent above the January 2012 bottom of the current cycle.

Indicators of market distress continue to decline. Foreclosure activity remains well below year-ago and peak levels reached in the last five years. Financing with multiple mortgages is low, while down payment sizes are stable.

Source: CoreLogic DataQuick;

Southern California Home Sales Dip To Three-Year Low; Smaller Year-Over-Year Gain for Median Sale Price

November 12, 2014

CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled services provider, today released its October Southern California homes sales report. Southland homes sold at the slowest pace for the month of October in three years as sales to investors and cash buyers continued to run well below October 2013 levels. Additionally, the median price paid for a home fell month-over-month again and the single-digit gain from a year earlier was the smallest in 28 months.

A total of 19,271 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in October 2014. That was down 0.4 percent from 19,348 sales in September, and down 4.4 percent from 20,150 sales in October 2013, according to CoreLogic DataQuick data.

Last month’s sales decline from September was not unusual. On average, Southern California sales have fallen 0.3 percent between September and October since 1988, when CoreLogic DataQuick data begin.

October home sales have ranged from a low of 12,913 in 2007 to a high of 37,642 in 2003. October 2014 sales were 17.7 percent below the October average of 23,413 sales.

“It was another sub-par month for Southern California home sales. We’ve yet to see traditional buyers fill the void left by the drop-off in investor and cash buyers, which began in spring last year,” said Andrew LePage, data analyst for CoreLogic DataQuick. “Of course, there are multiple reasons for this year’s lackluster sales. New-home transactions are still running at about half their normal level. The resale market is hampered by constrained inventory in many areas, in part because some people who want to put their homes up for sale still haven’t regained enough equity to purchase their next home. Then there are the would-be buyers who continue to struggle with affordability and mortgage availability, if not uncertainty over their employment or the direction of the housing market.”

The median price paid for all new and resale houses and condos sold in the six-county region in October 2014 was $410,000, down 0.7 percent from $413,000 in September and up 6.8 percent from $383,750 in October 2013. The median price also fell month-over-month between September and August this year. The August median of $420,000 was the highest for any month since December 2007, when it was $425,000.

The 6.8 percent year-over-year gain for the October median sale price marked the fifth consecutive month with a single-digit annual increase following 22 straight months of double-digit gains as high as 28.3 percent. The last time the year-over-year increase in the median sale price was lower than last month’s gain was in June 2012, when it was 5.3 percent.

The $410,000 October median stood at 18.8 percent below the peak $505,000 median reached in spring/summer 2007. Among the region’s six counties, the October 2014 median in Orange County ($595,000) was the closest – within about 8 percent – to its peak of $645,000 in June 2007.

Home prices in Southern California have been rising at different rates depending on price segment. In October, the lowest-cost third of the region’s housing stock saw a 13.6 percent year-over-year increase in the median price paid per square foot for resale houses. The annual gain was 5.1 percent for the middle third of the market and 3.6 percent for the top, most-expensive third.

The number of homes that sold for $500,000 or more rose 2.6 percent in October compared with a year earlier. Sales below $500,000 fell 10.4 percent year-over-year, and sales below $200,000 dropped 30.8 percent.

In October 2014, 35.8 percent of all Southern California home sales were for $500,000 or more, down from 36.4 percent in September and up from 32.8 percent in October 2013.

Also in the region, distressed property sales continued to wane last month.

Foreclosure resales represented 4.8 percent of the Southern California resale market in October. That was up insignificantly from 4.7 percent the prior month and down from 6.3 percent a year earlier. In recent months the foreclosure resale rate has been the lowest since early 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009. Foreclosure resales are homes foreclosed on in the prior 12 months.

Short sales made up an estimated 5.9 percent of resales last month. That was down from 6.1 percent the prior month and down from 10.8 percent a year earlier. Short sales are transactions where the sale price fell short of what was owed on the property.

Other Southern California housing market highlights from October 2014:

•Absentee buyers – mostly investors and some second-home purchasers – bought 23.6 percent of the homes sold last month. That tied the September 2014 revised absentee level as the lowest since October 2010, when 22.1 percent of homes were sold to absentee buyers. The October figure was down from 27.1 percent a year earlier. The peak absentee share was 32.4 percent in January 2013, while the monthly average since 2000, when the CoreLogic DataQuick absentee data begin, is about 19 percent.

•Buyers paying cash accounted for 23.5 percent of October home sales, down from a revised 24.2 percent the prior month and down from 28.6 percent a year earlier. Last month’s figure was the lowest since January 2009, when 22.0 percent of homes were bought with cash. The peak was 36.9 percent in February 2013, and since 1988 the monthly average has been 16.7 percent.

•In October, Southern California home buyers committed a total of $4.12 billion of their own money in the form of down payments or cash purchases. That was down from a revised $4.50 billion in September. The out-of-pocket total peaked in May 2013 at $5.41 billion.

•Jumbo loans, or mortgages above the old conforming limit of $417,000, accounted for 31.3 percent of purchase lending in October, up from a revised 30.9 the month before and up from 26.3 percent a year earlier. The July/August 2014 level of 32.3 percent was the highest since the credit crunch struck in August 2007. Prior to August 2007 jumbo loans accounted for around 40 percent of the home loan market. The jumbo level dropped to as low as 9.3 percent in January 2009.

•In October, 12.9 percent of home purchase loans were adjustable-rate mortgages (ARMs), down slightly from 13.3 percent the month before and up from 12.0 percent a year earlier. The ARM share dropped to as low as 1.9 percent of home purchase loans in May 2009. Since 2000, a monthly average of about 30 percent of purchase loans have been ARMs.

•All lenders combined provided a total of $5.58 billion in mortgage money to Southern California home buyers in October, down from a revised $5.63 billion the month before and down from $5.63 billion a year earlier.

•The typical monthly mortgage payment in Southern California was $1,574 in October 2014, down from $1,608 the month before and up from $1,499 a year earlier. Adjusted for inflation, the typical payment in October was 35.5 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was also 47.2 percent below the current cycle’s peak in July 2007.

To view the county-by-county chart, please visit

First-time homebuyers abandoning the housing market

November 4, 2014


Young America’s love affair with homebuying has hit a low point.

The percentage of homes that were sold to first-time homebuyers dropped to 33% this year, the lowest percentage in almost three decades, according to the National Association of Realtors. Typically, first-time homebuyers comprise about 40% of all purchases.

This is despite the fact that mortgage rates are hovering near record lows and home prices are still off about 15% compared to the housing boom peak, according to the S&P/Case-Shiller 20-city home price index.

It’s not that young adults, who make up the lion’s share of first timer buyers, don’t want to own; many do. According to a Zillow survey released in October, respondents ages 23 to 34 were, in fact, very bullish on home buying, with 83% of young renters expecting to buy a home someday.

So what gives? Blame it on heavy student debt loads and incomes that aren’t keeping up with rising home prices — especially in the urban areas where young Millennials would want to buy, the NAR said.

“Rising rents and repaying student loan debt makes saving for a down payment more difficult, especially for young adults who’ve experienced limited job prospects and flat wage growth since entering the workforce,” said Lawrence Yun, NAR’s chief economist.

Strict lending standards have also made it more challenging for Millennials to qualify for mortgages, especially since many are carrying thousands of dollars in student loan debt.

This has stirred debate. In a survey of 1,000 Millennials by online mortgage lender loanDepot, almost half said it was unfair to treat student loan debt the same way as debt from credit cards or other consumer lines of credit.

Strict lending protocols have also added costs to mortgage borrowing for many young buyers. With limited credit histories, they usually have lower credit scores and lack the funds to make large down payments.

Homebuyers using low down payment FHA loans, for example, pay about $50 more a month for mortgage insurance on loans of $100,000. And borrowers with 640 credit scores getting Fannie Mae- or Freddie Mac-backed loans pay fees that are three percentage points higher than borrowers with 740 credit scores.

Less strict credit standards and risk-based pricing would help boost first-time buyer participation, said Yun.

But even if lending standards loosened up, young homebuyers would still be facing stiff competition in some of the most attractive markets.

In San Francisco, for example, home prices have soared 35% in the past two years to a median of $880,000 according to the National Association of Home Builders. And competition is so stiff that open houses spark bidding wars.

Other markets, including Los Angeles, San Jose, Seattle and Austin, have also seen home prices climb by high double-digit percentages.

Fannie Mae: Consumer confidence in housing hits “all-time high”

A better balance of supply and demand

Americans’ view of the future of housing and their financial prospects continues to improve, according to the October 2014 National Housing Survey from Fannie Mae.

Per the results of Fannie’s survey, 45% of the respondents expect their personal financial situation to improve in the next 12 months, up from 38% a year ago. The share of respondents who expect the financial situation to worsen fell to 10%.

“Although consumer attitudes about the direction of the economy remain subdued, with only 40% of survey respondents saying the economy is on the right track, the October results mark a 13% point improvement compared to the same time last year,” Fannie said.

Fannie also reported that 44% of respondents believe that housing prices will rise in the next 12 months, which is actually down 1% from last month. The share of those who say home prices will decrease fell by one point to 7%.

The share of consumers who say that now is a good time to buy a house fell to 65% from 68% in September.

But on the other hand, the share of consumers who say that now is a good time to sell a house rose to 44%, which Freddie said is an all-time survey high.

“Consumers are growing more optimistic about the housing market in the face of broader improvement in economic sentiment,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

“The share of consumers who expect their personal finances to get better is near its highest level since the survey’s inception, while those expecting their finances to get worse reached a survey low,” Duncan continued.

“Home price expectations rose significantly this month, largely reversing the dip witnessed over the past four months, and the share of consumers who think it’s a good time to sell a home reached another survey high.”

Duncan said that the survey results suggest that the housing market may be headed towards an improved 2015.

“The narrowing gap between home buying and home selling sentiment may foreshadow increased housing inventory levels and a better balance of housing supply and demand,” Duncan said. “These results may help drive a healthier housing market in 2015.”

Monday Morning Cup of Coffee: What GOP control means for housing

Affordable housing minefields, getting an FHA loan, and more

Monday Morning Cup of Coffee takes a look at news crossing HousingWire’s weekend desk, with more coverage to come on bigger issues.

The morning after the midterm election and the historic sweep of Democrats out of office and power, HousingWire gave readers at least one take on what the new GOP majority in both houses of Congress will mean for housing, for Fannie Mae and for Freddie Mac.

On Sunday the National Association of Realtorsweighed in with the analysis of two speakers at the NAR convention and expo on Saturday.

Speaking at the NAR event, Mark Halperin and John Heilemann, co-authors of Double Down: Game Change 2012, seemed to agree with HousingWire’s take that not much will be coming until after Obama is out of office.

“House Speaker John Boehner’s historic majority will be more conservative than any other Republican Congress in the history of the Republic. The polarization of politics is the context of everything going forward,” said Heilemann.

Both speakers were skeptical that any major legislation will pass in the next two years, especially when it comes to housing policy, which is a divided issue on Capitol Hill. “There are people in Congress who think there should be no role for the government in the housing market. That makes it really hard to do anything on housing,” said Halperin.

Halperin said that neither President Obama nor the conservative Republicans are going to want to compromise on their key principles, and only time will tell if either will relent.

“As of now, President Obama is a spent political force, which is a real turnaround from Obama as a candidate, who was seen as someone with huge possibility. The president is now a more polarizing figure than former Presidents Bill Clinton or George W. Bush,” Halperin told Realtors.

Or, as Compass Point Research & Trading put it, “We expect the GSE reform conversation to return to Capitol Hill in the next Congress but doubt that there will be substantive progress. Our sense is that the Senate Banking Committee will focus on other legislative priorities and the House Financial Services Committee remains unlikely to compromise.”

Speaking of politics, opinion over at ZeroHedge is that Republicans are really unhappy with Federal Housing Finance Agency Director Mel Watt’s push for allowing bad creditors to buy houses with as little as 3% down.

They fear that Watt’s idea of “affordable housing mandate” is the same thing that led the industry down the path to irresponsible lending in the name of homeownership uber alles.

To wit:

When we commented on Mel Watt’s Einsteinianly-insane plans to reform FHFA, allowing bad creditors to buy houses (again) with only 3% down-payments (again), we expected nothing but echoes as the “it’s everyone’s ‘right’ to own a home”-meme gets played out for all to see in this goldfish-like societal memory that has entirely lobotomized the actions (and impact) of when this idiocy was trued before. However, a funny thing happened this week… called an ‘election’. And The Republicans have been quick to take note of Obama-appointee Mel Watt’s (replacing acting director Ed Demarco – who had some less-politik plans for real reform) plans with House Financial Services Committee Chairman Jeb Hensarling exclaiming he was “extremely concerned,” about Watt’s “efforts to force taxpayers to back high-risk mortgages with ultra-low down payments,” concluding this plan “must be rejected.”

In non-political news, ever wonder exactly what you need to do to get an FHA loan? Wonder no more, courtesy

Probably good to know since now one in every five new home loans is backed by the FHA, and it’s only increasing.

Perhaps what’s worrying those Republicans is the reemergence, on a much smaller scale than pre-crisis, of alternative mortgage options, including ARMS, piggybacks, teaser rates and more.

That’s not to conflate these safer, saner options that more people are taking advantage of with the road it looks like Mel Watt wants to go down – but people generally casually following the chatter could mistakenly think it’s getting all 2005 up in here again, when that’s clearly not the case.

Remember, markets and banks will be closed Tuesday for Veteran’s Day, which started to remember those who fought and died in the Great War, which ended on Nov. 11, 1918.

The somber holiday has grown to honor all veterans, past and present, living and fallen. We at HousingWire would like to say thank you to all who have served, and those who gave all.

One bank, Frontier Bank in California, was closed the week ending Nov. 7, according to the FDIC.