Month: February 2015

1 in 3 FHA borrowers would benefit from refinancing

FHA premium cut could benefit 2.4 million homeowners

One in three Federal Housing Administration borrowers would benefit from refinancing.

That’s the conclusion of a study conducted by theHousing Finance Policy Center at the Urban Institute.

The Center’s Laurie Goodman, Karan Kaul and Jun Zhu took a closer look at the impact of the premium cut on FHA refinance volumes and have concluded that roughly 2.4 million current FHA borrowers could benefit from refinancing.

They started with 6.6 million existing FHA loans and excluded the following three categories of loans:

  • 1.1 million loans originated prior to June 2009: Borrowers with FHA mortgages that were originated prior to June 1, 2009 are eligible for FHA’s Streamlined Refinance program. This program allows grandfathering of the pre-June 2009 annual MIP of 0.55%, and also reduces the upfront MIP to just 0.01% for these borrowers. Because these rates are significantly lower than FHA’s current premiums, pre-June 2009 FHA borrowers are essentially unaffected by the latest premium cut and are therefore excluded from our analysis.
  • 0.8 million delinquent and modified loans: We also excluded 0.5 million borrowers who we estimated to be delinquent, and an additional 0.3 million with modified mortgages.
  • 0.3 million loans with a term of 15 years of less: FHA’s latest premium cut does not apply to mortgages with a term of 15 years or less. These mortgages are also excluded from our analysis.

After excluding pre-June 2009 originated, delinquent, modified and mortgages with a maximum term of 15 years, (total 2.2 million), they estimated that roughly 4.4 million FHA borrowers could be candidates for refinancing.

In general, they found, borrowers stand to save money by refinancing if the new mortgage rate and the new FHA premiums, combined, result in a 0.75% reduction or more in annual mortgage costs.

“We used this as the base for our final estimate, assuming that the majority of borrowers would adopt this threshold,” they write. “Some borrowers are more conservative, of course, and might wait until their annual mortgage cost savings hits 1% to refinance, resulting in less refinance activity. Other borrowers are aggressive and might jump in when they stand to gain only 0.5%, which would result in more refinance activity. We’ve estimated these higher and lower triggers as well to give a clearer sense of the full range of potential refinance activity.

“Under our 0.75% threshold which we expect the majority of borrowers to adhere to, we estimate that roughly 2.4 million FHA borrowers could lower their mortgage payments even after accounting for refinancing costs. This represents over a third of the 6.6 million FHA borrowers,” they write.

Using a more conservative threshold of 1%, roughly 1.7 million borrowers could save money by refinancing.

At the more aggressive 0.5% threshold, their estimate rises to over 3 million.

“Our estimates are also based on the current FHA mortgage rate. A continued decline in rates could make refinancing appealing to a greater number of borrowers and would raise our estimates, whereas an increase in rates would lower them,” they write. “Other unknowns such as borrowers’ expectations of future mortgage rates can also affect refinance activity. If a large number of borrowers decide to wait in anticipation of even lower rates in the future, that would further reduce refinance volumes. Given what we know today, however, one in three FHA borrowers could certainly lower their monthly payments by refinancing.”

Huffington Post: 4 reasons to ignore the CFPB mortgage tool

A disservice to homebuyers?

Borrowers will no doubt be drawn to the mortgage rate tool from the Consumer Financial Protection Bureauwhen it comes time for them to do some home shopping.

On the Huffington Post, Jack Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania, gives several perfect reasons for why they shouldn’t do that.

“My advice to borrowers: ignore the CFPB tool, it is completely useless. The tool a borrower needs is a “shopping rate,” a rate that a competing lender should match or better. CFPB shows a distribution of rates, and leaves it to the shopper to decide which rate in the distribution is the shopping rate, while providing no guidance on how to do it.”

Several mortgage groups asked for the tool to be taken down.

Even so, the CFPB said that’s not going to happen.

Guttentag lists four additional reasons why the CFPB tool does not not meet a homebuyer’s shopping needs. According to him, the CFPB doesn’t consider four factors that would create a “valid shopping rate” for potential homebuyers.

1. Competitiveness

Guttentag reasons that a good rate should come from competing sources. The CFPB uses input from larger banks and others. “This means that the rates come from a hodgepodge of market structures, which could range from highly competitive to local monopoly.”

2. Transaction timing

As everyone in mortgage lending knows, rates are ever moving. The weekly mortgage rate article from Freddie Mac, dutifully covered by HousingWire week in and week out, gives a good idea where rates are headed, but never considered a worthy, tradable scale. Most lenders update rates in the morning.

“The rate that shoppers will find on the CFPB site, in contrast, ‘…is updated every business day in the evening.’ This means that it is always stale.”

3. Lender Fees

This is perhaps Guttentag’s most concerning point; the way the mortgage tool estimates lender fees. In this regard, the CFPB may actually allow a homeowner to get ripped off. Not good.

“The rates posted by CFPB are for loans with points between -0.5 and +0.5% of the loan, but fixed-dollar fees are not specified. This means that a lender can meet the CFPB shopping rate presented by a shopper, yet over-charge the borrower by padding the fixed-dollar fees.”

4. Transaction Features

The CFPB fixes five factors that make the individual’s shopping fee impossible to calculate. For example, fixing the tax and insurance escrow does not provide as useful a service as one that is more up-to-date.

“For a shopping rate to be valid, it must apply to the individual shopper’s transaction. A shopper looking to buy tomatoes is not helped by being told a competitive price for apples.”

Low down payment mortgage options return

Except these home loans are safer

New programs are starting to allow first-time homeowners back into the housing market, except this time, new regulation will help prevent the same type of lending that spurred the financial crisis. Per CNNMoney:

“It’s one of the things that’s inhibiting first-time homebuyers,” said Rob Chrane, president of Down Payment Resource. “There are a lot more people who can qualify for a home that don’t realize that they can.”

Two big factors that are playing in to the recent ease is theFederal Housing Finance Agency’s new down payment programs and the Federal Housing Administration’sreduction in mortgage insurance premiums.

In October, Fannie Mae and Freddie Mac announced97% loan-to-value offerings.

At the beginning of the year, the Obama Administration directed, via executive action, the FHA to reduce annual mortgage insurance premiums by 50 basis points, from 1.35% to 0.85%.

FHA monthly insurance premiums dropped dramatically at the beginning of 2015. The change, from 1.35% to only 0.85%, will make FHA loans a better choice for some borrowers after years of prohibitively high premiums, said Anthony Hsieh, chief executive officer of loanDepot, one of the largest FHA lenders in the country.

“We’re starting to get back to what’s reasonable,” said Hsieh. “The crisis has shaken the market so much that there is no doubt there was an overreaction.”

However, the article did caution that while a shift toward loans with lower down payments has drawn criticism from some politicians, the new rules for qualified mortgage loans and more diligent underwriting by lenders will protect the lending market.

Source: CNNMoney

Southern California Home Sales Decline; Median Sale Price Still Up Year Over Year

February 17, 2015
CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled services provider, today released its January 2015 Southern California housing market report. Home sales in January fell sharply from December, as they normally do, and dipped modestly from a year earlier, marking the 14th month in the last 16 to post a year-over-year sales decline. The median price paid for a home in the six-county region also dropped month over month but rose year over year for the 34th consecutive month, although that increase was less than half the gain of a year earlier.

A total of 13,560 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in January 2015. That was down month over month 29.4 percent from 19,205 sales in December 2014, and down year over year 6.3 percent from 14,471 sales in January 2014, according to CoreLogic DataQuick data.

On average, Southern California sales have fallen 27.6 percent between December and January since 1988, when CoreLogic DataQuick data began.

January home sales have ranged from a low of 9,983 in 2008 to a high of 26,083 in 2004. January 2015 sales were 21.7 percent below the January average of 17,322 sales since 1988.

“The January and February statistics are always interesting, and sometimes a bit strange, but they’re not necessarily a good indication of what’s to come,” said Andrew LePage, data analyst for CoreLogic DataQuick. “That’s largely because many traditional buyers and sellers drop out of the housing market during the holidays and mid winter, and therefore don’t close deals during those months. In recent years that’s led to somewhat higher concentrations of investor activity for January and February, and we saw that again last month. Heading into spring it will be interesting to see whether price appreciation and other factors will finally release a lot of the pent-up supply of homes out there. More owners have gained enough equity to sell and buy another home and more will be satisfied with how much their homes can fetch. At the same time, recent gains in job and income growth, coupled with low mortgage rates, could stoke demand and put significant pressure on prices unless we see a meaningful jump in inventory.”

The median price paid for all new and resale houses and condos sold in the six-county region in January 2015 was $409,000, down 1.4 percent month over month from $415,000 in December 2014 and up 7.6 percent year over year from $380,000 in January 2014. The median hasn’t changed significantly since September 2014, when it was $413,000. The median’s peak for 2014 was $420,000 in August.

Southern California’s median sale price has risen on a year-over-year basis each month since April 2012. In the 22 months between August 2012 and May 2014 those annual gains were double digit, as high as 28.3 percent in June 2013. Since then, the year-over-year increases in the median sale price have been single-digit. In January 2014 the median rose 18.4 percent compared with January 2013 – more than twice the 7.6 percent gain when comparing January 2015 with January 2014.

The January 2015 median sale price was 19.0 percent below the peak median price of $505,000 reached in March, April, May and July of 2007. Among the region’s six counties, the January 2015 median in Orange County ($562,500) was the closest – within 12.8 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 January 2015, the lowest-cost third of the region’s housing stock experienced a 9.0 percent year-over-year increase in the median price paid per square foot for resale single-family detached houses. The annual gain was 5.7 percent for the middle third of the market and 3.2 percent for the top, most-expensive third.

The number of homes that sold for $500,000 or more in January 2015 rose 2.0 percent compared with January 2014. Sales below $500,000 fell 13.8 percent year over year, and sales below $200,000 dropped 30.3 percent.

Other Southern California housing market highlights from January 2015 include the following:

•Foreclosure resales represented 5.7 percent of the resale market in January. That was up from a revised 5.3 percent in December 2014 and down from 6.6 percent in January 2014. 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 purchased homes that have been previously foreclosed upon in the prior 12 months.

•Short sales made up an estimated 6.5 percent of resales in January, up from a revised 6.2 in December 2014 and down from 10.7 percent in January 2014. Short sales are transactions in which the sale price fell short of what was owed on the property.

•Absentee buyers – mostly investors – bought 25.0 percent of the homes sold in January. That was up from a revised 23.6 percent in December 2014 and down from 27.6 percent in January 2014. The December 2014 absentee level tied the October 2014 level as the lowest for any month since October 2010, when 22.1 percent of homes were sold to absentee buyers. The peak absentee share was 32.4 percent in January 2013, and the monthly average since 2000, when CoreLogic DataQuick absentee data began, is about 19 percent. Absentee buyers include those who purchase vacation homes or other properties that public property records suggest are not used as primary residences.

•Cash buyers accounted for 24.6 percent of January home sales, up from a revised 22.2 percent in December 2014 and down from 29.9 percent in January 2014. The December 2014 cash share was the lowest for any month since January 2009, when 22.0 percent of homes were bought with cash. The peak was 36.9 percent in February 2013, and the monthly average since 1988 is about 17 percent.

•Jumbo loans, or mortgages above the old conforming limit of $417,000, accounted for 30.7 percent of purchase lending in January, down from a revised 32.1 percent in December 2014 and up from 26.6 percent in January 2014. 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.

•Adjustable-rate mortgages (ARMs) represented 11.3 percent of home purchase loans in January, down from 12.3 percent in December 2014 and down from 13.5 percent in January 2014. 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.

•The typical monthly mortgage payment for Southern California home buyers in January was $1,501, down from $1,558 in December 2014 and down from $1,528 in January 2014. Adjusted for inflation, the January 2015 typical payment was 37.7 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was also 48.9 percent below the current cycle’s peak in July 2007.

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

CoreLogic: Foreclosures down 13.7% year-over-year

39,000 completed foreclosures in December

There were 39,000 completed foreclosures nationwide in December 2014, a drop from 46,000 last year, marking a year-over-year decline of 13.7% and a fall of 66% from the pear of completed foreclosures in September 2010,Corelogic’s (CLGX) national foreclosure report said.

The 12-month sum of completed foreclosures for 2014, at 563,294, is at its lowest point since November 2007 when it was 589,570 and has declined every month for the past 34 consecutive months.

On a monthly basis, completed foreclosures were down 4.9% from the 41,000 reported in November 2014.

To put it in perspective, before the decline in the housing market in 2007, completed foreclosures averaged 21,000 per month nationwide between 2000 and 2006.

Since the financial crisis began in September 2008, there have been approximately 5.5 million completed foreclosures across the country, and since homeownership rates peaked in the second quarter of 2004, there have been approximately 7 million homes lost to foreclosure.

“In 2014, the annual sum of completed foreclosures declined 15% from the 662,000 reported in 2013,” said Sam Khater, deputy chief economist at CoreLogic. “Completed foreclosures last year were less than half the 1.2 million peak in 2010, but remain twice the level of normal activity over 10 years ago.”

As of December 2014, approximately 552,000 homes were in some stage of foreclosure, down from 840,000 in December 2013, a year-over-year decrease of 34.3% and representing 38 consecutive months of year-over-year declines.

The foreclosure inventory as of December 2014 made up 1.4% of all homes with a mortgage, compared to 2.1% in December 2013.

Monthly, the foreclosure inventory was down 2.9% from November 2014. The current foreclosure rate of 1.4% is back to March 2008 levels.

“The steady decline in the number of completed foreclosures is a good sign of healing in the U.S. housing market,” said Anand Nallathambi, president and CEO of CoreLogic. “Nonetheless, there remain many pockets of the country with very high foreclosure inventories, underscoring the unevenness of the nation’s housing recovery.”

FHA attempts to change rules to spur lending

Looks to loosen mortgage lending

The Federal Housing Administration is attempting to limit one of the most powerful tools federal attorneys have to punish banks for making mistakes in mortgage lending, anarticle in The Wall Street Journal said.

Because banks must certify that FHA-backed mortgages they originate have no errors, when mistakes are found the Justice Department has sometimes pursued damages under a Civil War-era law known as the False Claims Act that lets the government recover triple damages.

The article explained that banks started to pull back from originating mortgages since they feel penalties are too harsh relative to the errors made.

FHA’s attempt to change the provision shows the tightrope policy makers and regulators are trying to walk. While they want to hold lenders accountable for crisis-era mistakes and retain recourse should the loans go bad, they also want the banks to extend loans to some consumers who have been largely shut out of the mortgage market since the crisis.

Source: WSJ

Clear Capital: 2015 could be a banner year for lower and mid-tier housing

Number of potential move-up buyers steadily increasing

An optimistic Clear Capital’s Home Data Index market report argues that 2015 could be a transitional year where full buyer momentum in the low and mid tiers reinforce a strong housing recovery.

“We continue to observe the growing price performance gap between the top and bottom segments of the market,” says Alex Villacorta, vice president of research and analytics at Clear Capital. “The rate of appreciation for top tier homes is stalling, which is a more direct reflection of waning fair market demand.  While this is a concerning development, there is a silver lining. The moderating upper tier may give traditional buyers a moment to catch their breath, and entice move-up buyers to enter this segment of the market.

“The ripple effect of opening up inventory all the way down the price spectrum could provide opportunity and motivation across all segments, including first-time buyers, to enter the marketplace. The hope is that strength in the low and mid tiers help restore confidence in a stable housing market, and traditional homebuyers re-engage,” he said. “The next phase of the housing recovery is dependent on healthy demand from this segment.”

Clear Capital’s report says that sustained national price growth in the low tier segment, once driven by investor activity, is good news for first-time homebuyers. Also encouraging, the report says, the number of potential move-up buyers, once locked into underwater mortgages, has been steadily increasing.

“The recent rise in home prices continue to bring more homeowners out of negative equity. With more equity to play with, mid tier homeowners could move-up, creating more opportunity and driving healthy demand in the low and mid tiers of the market,” the report says. “The top tier gives way, extending more opportunity to traditional buyers. While we are expecting price growth to moderate across all tiers in 2015, the top tier’s quarterly growth rate fell to 0.3% in the fourth quarter, where it had been holding steady at around 1% through the first three quarters of 2014.” Year-over-year, this tier experienced the lowest price growth rate of 3.6% among the three national tiers.

At its current pace, continued moderation in the top tier could push quarterly price growth into negative territory in 2015. January data also reveals the low tier holding on to double digit gains year-over-year at 10.2% and healthy quarter-over-quarter gains of 1.5%.

This divide between a healthy low tier and stalling top tier could kick-off a domino effect. Stalling prices in the top-tier of the market could create the perception of a good deal.

“This instills confidence in mid tier homeowners, motivating them to move-up to the top tier. In turn, this opens up more opportunity for low tier homeowners to move-up to the mid tier,” the report. “Creating new opportunity in the low tier could entice potential first-time homebuyers to enter the market. This domino effect could be the catalyst for balanced demand across all sectors of the market.”