Jim Clooney Blog Page - Jim Clooney Org

Consumers Are Back to Paying Mortgages Ahead of Credit Cards

5/27/2014

Americans are putting their mortgages ahead of their credit cards when they pay the bills, reversing an unusual pattern that had developed after the housing bust.

As home values plunged during the downturn, consumers began to default on their mortgages while continuing to make credit card payments, according to research from TransUnion, reversing a long-standing hierarchy in which lenders expected mortgages to be paid first.

New data from the credit-reporting firm reveal that the normal payment hierarchy returned at the end of last year, following around two years of rising home values. “People are paying their mortgages again ahead of their bank card,” said Steven Chaouki, a financial-services executive at TransUnion, though the payment relationship hasn’t returned entirely to pre-crisis levels.

The data also show that before, during and after the crisis, Americans are most likely to make their car payments first.

read more: http://blogs.wsj.com/economics/2014/05/27/consumers-are-back-to-paying-mortgages-ahead-of-credit-cards/

Scares for top women at Stuttgart tennis

4/23/2014

How Canada is not like the United States: Home mortgage edition

1/20/2014

Those of us who write about the housing market and the virtues of the 30-year fixed home loan -- as we did Wednesday -- can calibrate our watches by how long it takes a reader to respond as follows:

"Hey, Canada doesn't have 30-year fixed mortgages, and their housing market's doing just fine!

Usually about a nanosecond.

This is a popular line of chatter for pundits too. Back in August, Matthew Yglesias of Slate.com questioned why "there's some urgent need for the government to subsidize 30-year fixed-rate mortgages. If you cross the border into Canada it's not like people are living in yurts."

That's true. Canada doesn't have fixed 30-year mortgage terms. But that's not the only difference between the U.S. and Canadian mortgage finance systems, by a long shot. I wonder whether the consumers, bankers and free-market ideologues on the Wall Street Journal editorial page who say the problem with housing in the U.S. is government interference would really be prepared to live in the Canadian system.

Actually, I don't wonder. I know they wouldn't.

Let's see why.

To begin with, the Canadian system is considerably more creditor-friendly than the U.S. Lenders typically have full recourse in cases of default, meaning they can attach all of a borrower's assets, not only the house. In the U.S. that's not permitted in 11 states, including California, and foreclosure proceedings are complicated even in the other states.

The standard mortgage in Canada isn't the 30-year fixed, as it is in the U.S., but a five-year mortgage amortized over 25 years. That means the loan balance has to be refinanced at the end of five years, exposing the borrower to any increase in rates that has occurred in the interim. Prepayment penalties for borrowers hoping to exploit a decline in rates, on the other hand, are very steep.

This looks as if it's a clear win for banks, which are minimally exposed to increased rates and protected from prepayments. But Canadian mortgages are also portable -- if you move before the five-year term is up you can apply your old mortgage to your new home. (If it's a more expensive home, you take out a new loan for the excess.) That restores some of the balance in the borrower's favor.

More important, observed Canadian economists Arthur Donner and Douglas Peters in a 2012 report for the Pew Charitable Trusts, the short term of Canadian mortgages allowed them to be funded from local short-term bank deposits at retail bank branches. The mortgage-lending system in Canada to this day resembles the American banking system up to the 1970s, when deregulation took hold and placed fancy, risky and careless lending at the center of the business model. (By the way, mortgage interest isn't tax-deductible in Canada, so there's no incentive to over-borrow.)

That may be the single most important factor distinguishing the U.S. and Canadian systems. Canadian banks haven't had a free ride in regulation like their American cousins. Mortgage terms are very closely supervised, as are the safety and soundness of lending banks. The Canadian system requires, and incentivizes, banks not to sell their loans but keep them on their balance sheets. That factor alone discouraged Canadian banks from offering the kind of wild, who-gives-a-damn mortgage structures that infected the U.S. It also prevented the erosion of underwriting standards seen here.

Canadian banks didn't have access to the private-label securitization that created that welter of toxic mortgage securities in the U.S., but they didn't need it. Securitization reached 40% of the market in the U.S. by 2007. In Canada, according to David Min of the Center for American Progress, it never exceeded 3%.

The idea that the U.S. government meddles in the mortgage market more than those free-market paragons in Canada is dead wrong. The truth is just the opposite.

Yes, the U.S. backs the conventional 30-year fixed loan through Fannie Mae and Freddie Mac, its government sponsored home loan firms. But the government-owned Canada Mortgage and Housing Corp, has an even greater influence over that country's market. It accounts for some 70% of all mortgage insurance, which is required on all loans covering less than 80% of the home value and guarantees the entire mortgage.

The Canadian regulatory system simply didn't allow the development of exotic mortgages designed to create loans for sale that had to be dressed up by fraudulent appraisals and flagrantly bogus credit ratings.

Put all these factors together -- tighter regulation, little securitization, less borrowing, etc. -- and you come close to an explanation for the different experience with delinquencies and defaults in the two countries. In the U.S., defaults peaked at about 5% o

Source: http://www.latimes.com/business/hiltzik/la-fi-mh-canada-20140116,0,6261576.story#axzz2qwuWUIyR
Follow me:

New mortgage rules shouldn’t affect most seeking a home loan in 2014

1/17/2014

Kurgan-Bergen Realtors in Rutherford provides the following information.

You may have heard about recent changes to mortgage lending rules that could make obtaining financing more difficult. Well, breathe easier potential homeowners, because these changes really shouldn't affect you much.

The new rules aren't really new. Lenders have known of and prepared for them for some time now. Most have already adjusted their policies accordingly so that you won't see much change at all going into the new year. In fact, Richard Cordray, the director of the Consumer Financial Protection Bureau who is making the rule changes, said approximately 95 percent of the loans currently being made would fit the new criteria.

The change that would have had the most direct impact on a borrowers ability to qualify is the imposition of a maximum 43 percent "debt to income" ratio.

This limits the percentage of a borrowers monthly gross income that can be used towards the payment of mortgage principal and interest, real estate taxes, homeowners insurance, mortgage insurance and consumer debt to 43 percent.

Existing policy varies from lender to lender but is generally capped at 45 percent on a "conventional" loan and can go as high as 50 percent on an FHA/HUD insured loan. However, this particular rule change isn't scheduled to go into effect until 2021.

source: http://www.northjersey.com/community/announcements/240412501_New_mortgage_rules_shouldn_t_affect_most_seeking_a_home_loan_in_2014.html
Follow me:

Why Credit Scores Dropped on New Mortgages in 2013

1/16/2014

Far fewer mortgage borrowers 'deeply underwater'

1/9/2014

The company reported Thursday that 9.3 million properties, or 19% of all homes with mortgages, were "deeply underwater" in December, meaning borrowers owed at least 25% more on their mortgage than the home was worth. That's down significantly from 26% of all homes with mortgages, or 10.9 million properties, last January, RealtyTrac reported.

A recovery in home prices has certainly helped to turn around the fortunes of many homeowners. The average U.S. home price jumped nearly 14% year-over-year through October (the latest data available), according to the S&P/Case-Shiller home price index. That has added thousands of dollars to the average home's value.

An increase in home equity typically means fewer foreclosures, said Daren Blomquist, a spokesman for RealtyTrac. "Negative equity is the foundation that foreclosures are built on, but you need another event -- a job loss or illness, for example -- to trigger a foreclosure," said Blomquist.

Related: Was my home a good investment?

The more deeply underwater borrowers are, the more likely they are to conclude that it makes little sense to continue to pay off their loans when money is tight. "It takes away their motivation to save their properties," said Blomquist.

They also have one less financial asset to tap into should they hit a financial rough patch.

And it makes it harder to sell the home. Borrowers typically have to do a "short sale," which is subject to the approval of their lender. If they can't get a short sale approved, they could end up in foreclosure.

Even though far fewer people are underwater on their homes than last year, it doesn't mean the foreclosure crisis is completely over.

read more: http://money.cnn.com/2014/01/09/real_estate/underwater-mortgages/
Follow me:

Consumer Financial Protection Bureau Releases New Mortgage Rule Resources for Consumers

1/8/2014

WASHINGTON, D.C. — On Tuesday, Jan. 7, 2014, the Consumer Financial Protection Bureau (CFPB) released additional resources for consumers as part of its campaign to educate the public about the new protections provided by the Bureau’s mortgage rules. These new materials include sample letters that consumers can send to their mortgage servicers. The Bureau is publishing these educational materials in anticipation of the January 10, 2014 effective dates for its mortgage rules.

“Taking out a mortgage to buy a home is one of the biggest decisions a consumer can make,” said CFPB Director Richard Cordray. “We want to make sure that people are aware of their new protections so they have the knowledge to make sound decisions about their financial futures.”

The CFPB’s mortgage rules protect consumers by requiring that mortgage lenders evaluate whether borrowers can afford to pay back the mortgage before signing them up. The rules also establish new, strong protections for struggling homeowners, including those facing foreclosure. Under the rules, mortgage borrowers will be protected from costly surprises and runarounds by their servicers.

The Bureau is working with industry, housing counselors, and consumer groups to promote a smooth implementation of these rules. The Bureau has released many different educational materials to improve the public’s understanding of the new rules and their protections. These materials include:

Read more: http://www.huntingtonnews.net/79688
Follow me:

Why buying or refinancing a house might be harder in 2014

1/7/2014

30 and 15 year mortgage interest rates rise up; Freddie Mac data and pending home sales review today

1/6/2014

Housing Sector news review 2013 and mortgage rate trends 2014:
According to the National Association of Realtors, pending home sales in November moved slightly higher. The news was well received and taken as a sign of additional stability for the U.S. economy which is still in the recovery process.
Specifically, pending home sales in November inched higher by .2 percent to 101.7 from the downwardly revised 101.5 which posted in October. The pending home sales data represents contract signings in the sector. The index rise reveals that economic confidence is rising and that future sector data should be positively skewed. Economists analyze the data and anticipate that sector activity will be subdued somewhat, yet stable.
Gains in 2014 will be held in check due to rising home prices and rising mortgage interest rates. The economy is improving and with improving economic trends, mortgage rates and home prices are expected to track higher throughout 2014.
Mortgage interest rates notched higher in the latest week. According to Freddie Mac, mortgage interest rates for the standard 30 and 15 year fixed mortgage plans climbed higher once again.
Mortgage rates for 15 and 30 year fixed plans today January 5, 2014:
According to Freddie Mac, the interest rate for the standard 30 year fixed plan rose to 4.53 percent. The average interest rate for the standard 15 year plan rose to 3.55 percent last week.

Source: http://www.learningandfinance.com/2014/01/05/30-and-15-year-mortgage-interest-rates-rise-up-freddie-mac-data-and-pending-home-sales-review-today/
Follow me:

Mortgage Rate Swings May Mean “Bumpy” 2014 Housing Market

12/30/2013

Climbing mortgage rates in 2013 corresponded with declines in home buying, a trend that could to some extent continue in coming months as interest rates adjust to shifts in the Federal Reserve’s monetary stimulus effort.

The average of 30-year fixed-rate mortgage interest rates so far this year compared against new-home sales illustrates that inversely proportional relationship: When interest rates go up, demand from would-be homeowners drops.

When rates as measured by Freddie Mac started rising in May and averaged 3.54% for the month, the seasonally adjusted annual rate of new home sales dropped by 4% from the prior month, according to the most recent housing data from the Commerce Department. Meanwhile, in October, mortgage rates dropped by three-tenths of a percentage point just as new home sales surged 18%.

The trend could continue in 2014, experts said, especially if rates change significantly.

“Particularly if we see a pretty quick rise – maybe a half a percentage point to percentage point rise — it’ll make for some bumpy demand in 2014,” said Ellen Haberle, an economist at Redfin, an online real-estate firm.

Mortgage rates first spiked in May after the Fed signaled it was considering pulling back its bond-buying program meant to keep a lid on long-term interest rates. The housing market initially stumbled, but started to recover once the central bank decided against any changes to the stimulus effort throughout the summer and into the fall.

Mortgage rates are still at historical lows, but they are already starting to creep upward once again. Freddie Mac said Thursday the average 30-year fixed rate mortgage was at 4.48%, its highest level since mid-September.

The interest rate on U.S. Treasurys is also going up. On Thursday, the yield on 10-year notes hit 3%, its highest level since September and the second time this year it has reached that mark. That threshold could signal higher interest rates ahead because it is used as a reference point for the cost of borrowed money for U.S. consumers and businesses. A higher yield can push up mortgage rates.

While rising interest rates could continue to drag on the housing market, it could also encourage those people waiting on the fence to make a decision to buy.

Even with rising rates, homes data is starting to show underlying strength in the market. The Commerce Department’s new-home sales reports for October and November marked the two strongest months of new-home sales since mid-2008, and sales in November alone were up nearly 17% from a year earlier, the report said.

New home sales data are a leading indicator in housing trends because sales are tallied at the signing of a contract rather than the closing. But they are an imperfect gauge because homebuilders are sometimes willing to buy down interest rate for buyers.

Data for pending-home sales in November, which is a similar measure for previously owned homes, will be released on Monday by the National Association of Realtors

source: http://blogs.wsj.com/economics/2013/12/27/mortgage-rate-swings-may-mean-bumpy-2014-housing-market/
Follow me: