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

1/20/2014

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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
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Consumer Financial Protection Bureau Releases New Mortgage Rule Resources for Consumers  

1/8/2014

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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
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Mortgage Rate Swings May Mean “Bumpy” 2014 Housing Market        

12/30/2013

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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/
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U.S. mortgage applications fall as refinance hits five-year low: MBA

12/27/2013

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(Reuters) - Applications for U.S. home mortgages fell for a second week and hit a 13-year low as mortgage rates rose due to a bond market sell-off following the Federal Reserve's decision to pare its bond purchase stimulus in January, an industry group said on Tuesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 6.3 percent to the lowest level since December 2000.

Mortgage applications have fallen sharply since this summer on a jump in home finance costs as benchmark Treasuries yields eventually rose to a two-year high.

Last Wednesday, Fed policy-makers opted to make their tapering move, which will begin in January with a $10 billion monthly reduction evenly split between Treasuries and mortgage-backed securities to $75 billion.

"Following the Federal Reserve's taper announcement, mortgage application volume dropped again last week, with rates increasing and refinance application volume falling to its lowest level since November 2008," Mike Fratantoni, MBA's vice president of research and economics, said in a statement.

The rate on fixed 30-year mortgages averaged 4.64 percent last week, up 2 basis points from the prior week. It fell short of the two-plus year high of 4.80 percent set in September.

The MBA's seasonally adjusted index of refinancing applications fell 7.7 percent.

The gauge of loan requests for home purchases, a leading indicator of home sales, fell 3.5 percent to its lowest level since February 2012.

The refinance share of total mortgage activity slipped to 65 percent from 66 percent the previous week, while adjustable-rate mortgages rose 8.3 percent last week to the biggest share since July 2008.

The MBA typically reports its weekly application data on Wednesday, but released the data a day early due to the Christmas holiday. It said it will suspend release of the data next week. It will resume the release of the data on January 8 with results of the two prior weeks.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Source: http://www.reuters.com/article/2013/12/24/us-usa-economy-mortgages-idUSBRE9BH0IK20131224

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CoreLogic Reports 791,000 More Residential Properties Return To Positive Equity In Third Quarter Of 2013 

12/17/2013

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IRVINE, Calif., Dec. 17, 2013 /PRNewswire/ -- CoreLogic(R) (NYSE: CLGX), a leading residential property information, analytics and services provider, today released new analysis showing approximately 791,000 more residential properties returned to a state of positive equity during the third quarter of 2013, and the total number of mortgaged residential properties with equity currently stands at 42.6 million. The analysis indicates that nearly 6.4 million homes, or 13 percent of all residential properties with a mortgage, were still in negative equity at the end of the third quarter of 2013. This figure is down from 7.2 million homes, or 14.7 percent of all residential properties with a mortgage, at the end of the second quarter of 2013*. 

 Negative equity, often referred to as "underwater" or "upside down," means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

The national aggregate value of negative equity was $397 billion at the end of the third quarter compared to $430 billion at the end of the second quarter of 2013, a decrease of $33.7 billion. This decrease was driven in large part by an improvement in home prices.

Of the 42.6 million residential properties with positive equity, 10 million have less than 20 percent equity. Borrowers with less than 20 percent equity, referred to as "under-equitied," may have a more difficult time obtaining new financing for their homes due to underwriting constraints. Under-equitied mortgages accounted for 20.4 percent of all residential properties with a mortgage nationwide in the third quarter of 2013, with more than 1.5 million residential properties at less than 5 percent equity, referred to as near-negative equity. Properties that are near negative equity are considered at risk should home prices fall.

"Rising home prices continued to help homeowners regain their lost equity in the third quarter of 2013," said Mark Fleming, chief economist for CoreLogic. "Fewer than 7 million homeowners are underwater, with a total mortgage debt of $1.6 trillion. Negative equity will decline even further in the coming quarters as the housing market continues to improve."

"We should see a further rebound in consumer confidence and economic growth in 2014 as more homeowners escape the negative equity trap," said Anand Nallathambi, president and CEO of CoreLogic. "Home price appreciation has helped more than 3 million property owners regain equity since the first quarter of 2013." 

read more: http://online.wsj.com/article/PR-CO-20131217-904750.html?dsk=y
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Fannie Mae Mortgage-Guarantee Fees Increased by U.S. Overseer 

12/11/2013

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Job growth drives mortgage rate jump

12/9/2013

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Mortgage rates jumped this week on stronger-than-expected economic reports, according to Freddie Mac's weekly survey.

The 30-year, fixed-rate loan, the most popular product for homebuyers, rose to 4.46% from 4.29% last week. The average rate on a 15-year, fixed-rate mortgage, typically used for refinancing higher interest mortgages, also jumped 0.17 percentage point to 3.47%. 

 This week's rate approached a high for the year. Rates on the 30-year have ranged from a low of 3.34% in the first week of January to a high of 4.58% in August.

Frank Nothaft, Freddie's chief economist, cited job creation as a prime reason for the rate spike.

"Private companies added 215,000 new jobs in November according to the ADP employment report, well above the consensus," he said. "In addition, revisions added 54,000 jobs in the prior month." 

Read more: http://money.cnn.com/2013/12/05/real_estate/mortgage-rate-rise/
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Mortgage Rates Highest in More than 2 Months

12/3/2013

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Mortgage rates up a bit, but still near record lows

12/2/2013

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WASHINGTON — Average U.S. mortgage rates rose modestly this week, a move that makes home-buying a bit less affordable. Still, rates remain near historically low levels.

Mortgage buyer Freddie Mac said Wednesday that the average rate on the 30-year loan increased to 4.29 percent from 4.22 percent last week.

The average on the 15-year fixed-rate loan ticked up to 3.3 percent from 3.27 percent.

Rates have risen nearly a full percentage point since May after the Federal Reserve signaled it might slow its bond purchases by the end of the year.

Rates peaked at nearly 4.6 percent in August. But the Fed held off in September and most analysts expect it won’t move until next year.

The increase in mortgage rates has contributed to a slowdown in home sales over the past two months.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week.

The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was unchanged at 0.7 point. The fee for a 15-year loan also was unchanged at 0.7 point.

The average rate on a one-year adjustable-rate mortgage edged down to 2.6 percent, from 2.61 percent last week. The fee was unchanged at 0.4 point.

The average rate on a five-year adjustable mortgage edged down to 2.94 percent this week, from 2.95 percent last week.

The fee was unchanged at 0.5 point.

Source: http://www.poughkeepsiejournal.com/viewart/20131201/LIFE/312010047/Mortgage-rates-up-bit-still-near-record-lows
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Mortgage Rate Analysis And Predictions : How Will U.S. Mortgage Rates Move This Week?

11/26/2013

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Mortgage markets worsened last week, moving U.S. mortgage rates higher on the whole.

Like prior weeks, market action was sharp. Rates climbed 0.25 percentage points Wednesday afternoon, which shocked thousands of unprepared mortgage rate shoppers. Markets made small improvements over the remainder of the week, but couldn't undo the damage. 

Mortgage rates have been volatile since last quarter. So, what can buyers and refinancing households expect to see this week. What will mortgage rates do next?

Freddie Mac : 30-Year Fixed Rate At 4.22%

According to government-backed Freddie Mac, last week, the average 30-year fixed rate mortgage rate slipped 13 basis points to 4.22% nationwide; with the rate available to prime borrowers willing to pay 0.7 discount points at closing.

0.7 discount points carries a cost equal to 0.7% of your loan size.

A borrower in Boston, Massachusetts, therefore, whose loan size is equal to the local Freddie Mac mortgage loan limit of $417,000 would pay $2,919 at closing in order to lock a 4.22% mortgage rate. A borrower in Orange County, California with a loan size at the local limit of $625,500 would pay $4,379. 

Borrowers opting out of discount points will pay slightly higher rates.

Freddie Mac reported rates for 15-year fixed rate mortgages lower, too. The group's survey of more than 100 mortgage lenders showed the average 15-year fixed rate mortgage rate down eight basis points to 3.27% nationwide.

Like its 30-year counterpart, the 15-year rate requires 0.7 points to be paid at closing.

There is now a 0.95 percentage point difference between the published rates of a 30-year and 15-year fixed rate mortgage -- among the largest spreads in recorded mortgage history. Borrowers using a 15-year mortgage now pay close to 70% less to own their own home than via a 30-year loan.

Read more: http://themortgagereports.com/14022/mortgage-rate-analysis-and-prediction-how-will-u-s-mortgage-rates-move-this-week
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