Conforming Loan Limits increased


above photo Mel Watt, director of the Federal Housing Finance Agency (FHFA), from left, Jerome Powell, chairman of the U.S. Federal Reserve, Steven Mnuchin, U.S. Treasury secretary, and Jay Clayton, chairman of the Securities and Exchange Commission (SEC), listen during a Financial Stability Oversight Council (FSOC) meeting at the U.S. Treasury in Washington, D.C., U.S., on Tuesday, Oct. 16, 2018. Powell said at the meeting he is worried about a spillover from hard Brexit, but stocks and Treasuries showed little reaction. Photographer: Andrew Harrer/Bloomberg via Getty Images

 

Today, the Federal Housing Finance Agency (FHFA) announced conforming loan limits would increase from $453,100 to $484,350.  For higher cost areas (see map below) the new limit will be $726,525.  FHFA was created as the umbrella agency for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

Fannie Mae Headquarters, Washington, DC (Photo by Alex Wong/Getty Images)
Freddie Mac Headquarters, McLean, VA (Photo credit should read PAUL J. RICHARDS/AFP/Getty Images)

They purchase home loans from a network of lenders across the nation.  The lenders originate the loans from consumers who are seeking to finance their home purchase or to refinance their existing mortgage.  The lenders also work with mortgage brokers, credit unions and other organizations who have direct contact with consumers.

Once the loans are funded, they are packaged and sent to respective investors (i.e., Fannie Mae and Freddie Mac) and sold as securities, which are backed or collateralized from the property.

 

The Impact

Nationally the average loan amount is $229,000.  The new guidelines take effect for mortgages that originate starting January 1, 2019.  The increase will help those who see home prices continue to rise.

Conforming loans are those where the loan amount is $484,350 OR LESS.  Any loan amount in excess of that loan is defined as a “Non-Conforming” loan.  For borrowers the impact is typically ½ point or 50 basis points on the interest rate.

 

As an example based on current limits

Loan Amount Rate Payment Mo. Difference
$453,100.00 4.81% $1,816.00 -$188.00
$453,101.00 5.31% $2,004.00

The bottom line difference could be approximately $190 each month.  So, while the monthly payment is crucial, the move also provides those with higher loan amounts an additional $31,250 to deal higher prices, while being able to obtain more affordable interest rates.

 

Mortgage rates jump to near 5%


COVER PHOTO.  Traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on October 10, 2018 in New York. - Wall Street stocks plunged Wednesday, with major indices losing more than three percent in a selloff prompted by the sudden jump in US interest rates. At the closing bell, the Dow Jones Industrial Average had lost 3.1 percent or 830 points to finish at 25,613.35, in the biggest fall since February. (Photo by Bryan R. Smith / AFP) (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)

Mortgage rates jumped to 4.90% which is a number not seen in nearly seven years based on Freddie Mac’s weekly rate survey.  Although an increase was expected the jump of nineteen basis points caught some by surprise.  As strong as the economy is purchasing a home continues to be an illusive transaction for many.  The rise in rates buffeted by the increase in home prices have left many reconsidering their plans as evidenced by the drop in mortgage applications.

Remember that tax break earlier in the year?

Last December president Trump and the GOP controlled congress touted the tax cut as a “cure-all” and justification of their leadership prowess.  Indeed, a good chunk of working people did receive benefits from the tax cut and a few were lucky enough to get bonuses.  The average cut was about $1,600.


For those who were positioning to buy a home or refinance their existing mortgage the recent mortgage rate hike has wiped out that savings.

Time Rate Payment Annual
Oct. 2018 4.90% $1,252
Oct. 2017 3.90% $1,113
Diff $139 $1,668
**based on average mortgage of $239,000

Cyclical

Most understand rates and economic metrics are cyclical.  In other words when you have an improved economy, you will also see a rise in consumer goods.  Also, recently the Feds increased the discount rate.  This was done as a preventative measure to thwart inflation.  Normally political leaders stay out of the Fed’s business but Donald Trump has continued to intimate their move has contributed to rate increases claiming they will result in a negative impact.

“I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy,” President Donald Trump 

Tariffs

Another pressure-point for the economy is the recent drop in the DOW Jones and financial markets.  Business leaders, especially those in the real estate sector attribute the decline to the uncertainty of the Trump imposed tariffs and other measures.  They feel recent gains may be wiped out.

“These tariffs will translate into higher costs for consumers and U.S. businesses that use these products, including home builders,” Randy Noel, chairman of the National Association of Home Builders 

Here is a snapshot of this week’s rate survey

October 11, 2018

30-Yr FRM 15-Yr FRM 5/1-Yr ARM
Average Rates 4.9 % 4.29 % 4.07 %
Fees & Points 0.5 0.5 0.3
Margin N/A N/A 2.77
Freddie Mac produces the weekly rate survey.  It is the industry standard for consumers and mortgage professionals to gauge consumer mortgage rates.

 

Mortgage Fraud on the rise


Today mortgage information provider CoreLogic released its “Annual Fraud Report” documenting a rise in consumer mortgage fraud.  The report highlights that recently convicted former Trump campaign manager isn’t the only one who submitted false applications to secure mortgage loans.  As in the case of Manafort, mortgage fraud is a federal offense and the penalties can be stiff, including incarceration.

ALEXANDRIA, VA –  Manafort was charged with financial frauds and is the first defendant in special counsel Robert Mueller’s investigation into Russian interference in the 2016 presidential election to face trial. (Photo by Alex Wong/Getty Images)

Even though the economy has improved, the rise in home prices and corresponding amount of income needed to qualify for a loan has increased.  Although it is a risk management issue the numbers note approximately 1 in 109 applications have some type of fraud.  The report reflects the fraud index has increased for the past seven quarters.

Two fraud issues that are top of mind for risk managers right now are false credit disputes and income misrepresentation.

Video discusses the report shown here

https://players.brightcove.net/75895570001/EJUJuZYOl_default/index.html?videoId=5822617829001

 

 

Unemployment numbers dip to 3.7%


 

US President Barack Obama shakes hands as Republican President-elect Donald Trump thanked him for creating a positive economy. JIM WATSON/AFP/Getty Images)

Publishing numbers not seen since 1969, yesterday the Bureau of Labor Statistics (BLS) released its October jobs report.  The numbers reflect data compiled for the month of September as unemployment dipped to 3.7%, with new jobs pegged at 134,000.  That is good news for the Trump administration as it validates their message of a strong economy.  The news was expected and comes at a good time for them as even though they inherited the foundation of a good economy from the Obama administration, they have been mired in a string of self-inflicted blunders ever since taking over the reins. 

They view those blunders as attacks from those who are upset they won the 2016 election.  Others view them as leaders who are inexperienced at managing a government, fraught with suspicious characters linked to criminal behavior.

In addition to the Mueller investigation, they are dealing with a majority of the public not in support of their United States Supreme Court nominee, Brett Kavanaugh.  Earlier today Kavanaugh squeaked by with a 50-48 vote.  While there is jubilation from those who support Trump and Kavanaugh, the untold cost may not be realized until the mid-term vote slated for November 6th.   Some fear this and other moves by the administration might cost the GOP control of congress.

Sen. Elizabeth Warren (D, Mass.) speaks to protestors gathered at the steps of the US Supreme Court as the Nation waits for the expected confirmation Judge Brett Kavanaugh, in Washington, D.C., on October 6, 2018.
(Photo by Bastiaan Slabbers/NurPhoto via Getty Images)

 

Trump understands the media dynamic

As September numbers are a positive sign, Trump no doubt will use the data to proclaim the numbers reflect the lowest, specifically among African-Americans and other minority groups.  While the numbers are real and give great justification to those who support Trump, it must be noted he is a master manipulator of the spoken-word and you really have to ponder how serious he is about the claim?  Or, is he appeasing to the conscious of those who have very little knowledge of the historic perspective of employment gaps between whites and minority groups?  Oftentimes they view any news spouted from Trump as near-gospel, certainly not worthy of understanding the overall context of such statements. 

 

Understanding media, Trump has woven unemployment data into his rallies and other talking-points.  The issue for some regarding this sentiment is whether Trump is genuine, as his tone appears to mock the point which is a very serious issue for African-American’s who have been systemically unemployed at a rate at least twice that of whites.  This has been lingering problem presidents have been dealing with ever since the notion of race entered the American nomenclature.  It was created to divide people and groups.  While the numbers in fact have declined, the real gap is a constant historical fact; a key metric providing evidence to the wealth gap that highlights the polarization of our nation. 

In attempting to proclaim his support for the African-American community, who can forget this quote Trump made while on the campaign trail?

“Oh look at my African-American over here,” Mr. Trump said. “Are you the greatest? Do you know what I’m talking about?”

 

 

OMAHA, NE – MAY 4:
Isaiah Hall, 21, responds to a question from Crystal Sauser, a public relations manager, during a job interview at AirLite Plastics in North Omaha on Friday, May 4, 2018, in Omaha, NE. “We’re going to offer you the position,” Sauser said, and the stoic face Isaiah began to melt into a smile. Isaiah finally had a job.
Only seven of the overall 13 students (one student started a day after the initial 12 students) would make it through the training and to this morning of job interviews.
Over the past decade, concentrated efforts by various organizations in Omaha have helped drastically drive down the unemployment rate among African Americans, particularly in North Omaha, which is majority Black. While Donald Trump brags about how he has helped lower the national unemployment rate among Blacks, the city of Omaha has shown how a small group doing targeted employment bootcamps and workshops can help boost statistics with minimal help from the local, state, or federal government.
(Photo by Jahi Chikwendiu/The Washington Post via Getty Images)

Indeed, unemployment numbers are down but a nagging question remains which is why is there a disparity with white workers versus other ethnic groups?

 

“Among the major worker groups, the unemployment rates for Whites
(3.3 percent) declined in September.  Blacks (6.0 percent), Asians (3.5 percent), and Hispanics (4.5 percent)stagnation”  Bureau of Labor Statistics (October 2018)


The jobs report will continue to boast consumer confidence.  However, the issue for many is keeping pace with rising consumer cost.  The Fed’s recent rate hike is the reality of a cyclical economy.  Some things go up and others go down.  As an example, housing prices continues to soar resulting in many who are employed to delay buying a home, simply because the percentage needed from their paycheck to handle the monthly payment has increased year over year.

Here is an example of 1969:2018 –   Wages & percentage of income needed for monthly payment.

Monthly Income Home Price Int. Rate P & I Pct. Of Income needed
1969 $492 $24,400 8.42% $186 38%
2018 $4,326 $539,000 4.75% $2,811 65%
Averages based on California

Reverse Mortgages:  Tougher guidelines effective today


(cover photo by Mindy Schauer/Digital First Media/Orange County Register via Getty Images)
(Photo by Liz O. Baylen/Los Angeles Times via Getty Images)

Reverse mortgages, technically known as Home Equity Conversion Mortgages (HECM) have tougher underwriting guidelines effective October 1st.

The announcement was made by the Federal Housing Administration (HUD) which is part of the United States Housing and Urban Development (HUD) agency.  HUD insures the mortgages which are originated by lenders at the consumer level, thus allowing borrowers a tool to utilize the equity in their homes to obtain a loan.

 

The move essentially means in addition to the initial appraisal used to determine property valuation, a second independent appraisal will now be required.  The borrower’s loan will be based on the lower of the two appraisals.  In a gesture to appease the borrower’s chagrin of the new requirement, the cost of the second appraisal is allowed to be financed as part of the closing costs.  In making the move HUD announced it needed extra protection for the collateral being used to obtain the loan, as it battles with a shrinking insurance pool.

 

House rich, cash poor

HECM’s have picked up in popularity since the early 2000’s.  As people have lived longer lives, it was a statistical reality that many seniors were dealing with a precarious situation.  For a variety of reasons their cash reserves were being depleted and the result was a negative impact to their day-to-day living.  It was also noted many in that population who were homeowners were sitting on large equity positions.  Unfortunately, underwriting guidelines made it prohibitive for them to obtain standard mortgage loans.

HECM’s solved that solution, at least for those who were at least 55 years of age and had sufficient equity.  Instead of a regular loan where you make monthly payments, the loan actually provides the borrower income based on the equity position.  Paying off the debt was not required until the borrower deceased or it was somehow refinanced.

 

The new guideline is not expected to thwart the popularity of the program.  But, it is one critical guideline that HUD feels will help sustain the viability of the program.

Read the updated guideline here

Recap: “Evolution of View Park: Making Sense of Gentrification”



[Expo Park – Los Angeles, CA]  Last Thursday the California African-American Museum hosted the final symposium series on gentrification. The event was created by Karen Mack of L.A. Commons. “Evolution of View Park: Making Sense of Gentrification” featured great audience participation, some solid questions and an excellent presentation.

South Los Angeles is ripe for gentrification as the average home price sets at $375K

Complex topic

As mentioned in previous articles on this series; the gentrification topic is very complex and one that can be quite emotional in discussing, particularly from the brave souls in attendance who offered compelling anecdotal commentary.   These types of events are eye-openers as the commentary offered by the audience oftentimes transforms into a venting session which is necessary to put the topic front and center.  However, it can be precarious as the venting can go on and on…….leaving very little room for solutions based strategies to be communicated.

 

“This series has been so successful Karen should take it on the road” Robert Lee Johnson, Community Author

 

The event started at 2pm and once again the venue was packed to the brim.  As predicted due to the primary area of discussion; View Park, the majority of those in attendance were African-American.

 

Crack epidemic in the 80’s

 

The civil rights movement of the 1960’s as well as the dismantling of racial covenants which previously kept African-Americans from moving into certain communities was critical as there was an increase in the movement towards achieving middle class status through home ownership.

 

Families grew at an impressive clip.  What gets lost in the whole gentrification discussion, particularly trying to answer the question of if certain neighborhoods or property was hard to achieve why did some of those same families leave and flee to the suburbs and other areas?  For those who cherish Ronald Reagan as an icon of growth while perpetuating the “American dream,” those from the African-American communities have a different perspective.  It is well documented funds needed to fight the Nicaraguan war as well as other conflicts in Central and South America came from the purchase of the readily supply of cocaine.  The product found haven in urban centers across America.  The result was turf battles, killings and other negative consequences which dismantled neighborhoods that were once beacons of progress and hope.  As those areas decayed, it became ripe for reinvestment to replace current occupants.

 

Legacy and affordability

A key theme or issue which many were seen nodding their heads in agreement was the notion that offspring of those who purchased property in the 60’s, 70’s, 80’s and beyond have great difficulty in being able to purchase their own home, today!  While that is a statement many seem to affirm, it raises many questions.  Did those parents who originally purchased home not do an adequate job in helping their offspring achieve financial literacy?  Due to their successes, did they seem to project a road that their offspring would not have to work or sacrifice like they did?  Why do they assume their offspring cannot qualify for financing, while admitting their incomes are perhaps higher based on the age they first purchased?  It is more complex then assessing those who grew up in the area cannot afford the very area they grew up in.

 

Reverse racism?

 

The interest in the symposium topic was obvious based on packed crowds at each event.  There was a strong sentiment of how homeownership was achieved and how it was critical for them to create a legacy for their heirs.  More important was the need for African-Americans to maintain those neighborhoods.

 

United States history is ripe with laws, regulations, discrimination and other tactics to deprive groups such as African-Americans from owning property or relegating them to specific communities.  Some in attendance were quick to point out their pleas to keep neighborhoods in the hand of African-American should not be construed as defining them as racist.  Technically that would be impossible as racism is using race to oppress other ethnic groups.  African-Americans are not creating any laws or systemic maneuvers to keep any out.

 

Solutions

As mentioned due to the venting there was more assessment of the problem versus solution.  However, that is to be expected as what Karen Mack organized was a starting point to discuss the issue and that is crucial for stakeholders to speak to their issues.

 

One important theme offered by those presenting possible solutions was the need to become organized and take a more active role in legitimate organizations.

 

Due to time the event had to conclude but many in attendance committed to taking this discussion offline and continue to address issues to combat the negative reality of gentrification.

 

Readers are encouraged to educate themselves on this topic.  Karen Mack may or may not agree to a road show, in the meantime those interested must stay engaged in community platforms such as the one which brought folk together for this series.

Mortgage rates down, job numbers up…..will it be enough to stop the blue wave?


Creating some relief for those obtaining a new mortgage, rates slid down 10 basis points in week over week reporting.  This morning job numbers also posted impressive gains, despite Donald Trump breaking a long-standing policy of intimating the news prior to the official release with one of his early morning tweets.  The issue is the Bureau of Labor Statistics is to be the first voice in officially releasing the numbers, which normally is around 8:30AM .  Period!

In Trump fashion while he did not specifically break protocol, his mere mention was enough to cause consternation for those who treasure integrity from our institutions.


Looking forward to seeing the employment numbers at 8:30 this morning.


These two metrics and other positive signs bode well for those in political control and could be enough to keep them in the driver’s seat.  The unknown is will they be enough to fend off the impending blue wave from the November election that could result in Democrats gaining control of one or both seats of Congress?

Those in control insist the majority of voters are only concerned about kitchen-table issues and pay little attention to the other dilemmas Trump and the ruling party are attempting to deal with.  They are banking on as long as impressive economic numbers are achieved, any other issues are secondary and will keep them in control.

Of course, Congressperson Maxine Waters (D-California) who has been a thorn in the side of Trump and his supporters sent out a warning while appearing on a national news program earlier this year in March.

“for if some reason, Robert Mueller does not get him, Stormy will.”

 

A recap of the numbers is posted here:

Mortgage

Unemployment

 

 

Mortgage rates keep rising


An increase of six basis points is normal within week over week reporting.  However, it is the trend which has many borrowers showing signs of concern.  The benchmark thirty-year mortgage crept to the highest point of 2018 and now sit as 4.610%.  The news was reported yesterday as Freddie Mac released its primary market survey which tracks mortgage rate movement.

 

A seller’s market

 

Adding consternation to those in the market to purchase a home is the fact the current market is defined as a “seller’s market.”  That translates into fewer properties on the market, thus buyers have been forced to make competitive offers and the result is higher sales prices.

 

Those in the market to purchase a new home or refinance their existing mortgage usually take a very cautious position when contemplating a transaction.  The economy has been on a nine-year recovery and each month there has been improvement.  Unemployment is at record lows.  Some have received bonuses or extra money in their paychecks.  All of this may sound good on a political front, however the increase in rates represents higher cost and puts first time buyers in jeopardy as there is added pressure on them to qualify for a loan.

 

Rates have increased approximately fifty basis points from a year over year comparison

 

Here is a snapshot of rates for popular programs:

May 17, 2018

30-Yr FRM 15-Yr FRM 5/1-Yr ARM
Average Rates 4.61 % 4.08 % 3.82 %
Fees & Points 0.4 0.4 0.3
Margin N/A N/A 2.77

 

** each week Freddie Mac publishes the rate survey.  It is retrieved from a sampling from its lenders who sell mortgages to them.  The report is an industry standard and used to gauge consumer mortgage rate movement.

CITY RISING:  A 2017 look at Gentrification


Special Review

 

[Los Angeles, CA] On September 13th KCET in partnership with The California Endowment hosted the premiere screening of CITY RISING.  The theme of the documentary is gentrification.  An overflow crowd of nearly 700 was on hand to see the “Director’s Cut” which was 90 minutes.  Coincidently, on the same evening KCET showed the regular 60-minute screening on their channel.

If you’re black, get back!

If you’re brown, stick around!

If you’re white, it’s all right!

from an anonymous social scientist

 

Gentrification, a working understanding

Not every white person is rich and not every black person or those of color is poor!  One legacy of the history of the United States is the construct of racism or using race as a controlling factor.  On basic quality of life issues; from economic or the ability to earn money, to health, to housing and other areas whites were granted privilege over other groups.   Even today many attempt to dismiss this very basic fact of not understanding or accepting the issue in a historical context.

 

“He who gets behind in a race must forever stay behind or run faster than the man ahead of him, that is our dilemma” – Dr. Martin Luther King, Jr. January 1961 

 

That privilege buffered by legal discrimination, including specific land covenants of who could buy land or live in certain communities which set in motion the premise of defining the American Dream as being able to afford a home.  Unfortunately, the dream dismissed the reality of certain groups being blocked based on race.

 

In addition to basic shelter, the more important benefit of home ownership is wealth accumulation or a legitimate asset which has generational benefits.  The lack of it, is one reason for the marginalization.

 

Inner cities, the target of gentrification

 

Following the great depression and leading up to the industrial revolution, cities throughout the U.S. witnessed an economic boon.  Labor was the fuel that fed the boon and many ethnic groups relocated and the result was financial uplift.  As the majority group or whites were enjoying the lions-share of the boon, they created the strategy in developing suburbs which allowed them to flee the urban core.  They were able to transfer their properties (through sale or renting) to the minority groups who remained.  Thus, the term “white flight” was coined.  More important and critical to the gentrification discussion is the reality that as whites moved out of the urban core, critical resources were stripped and went with them.   Employment stability left.  Stores left.  Services left.  Resources which are necessary for a community to thrive slowly disappeared.  The result was communities were disseminated and succumbed to blight and other negative forces.  As bad as that may appear the groups who remained didn’t die off.  Instead they created their own identity based on their culture to create a vibrancy which allowed them to thrive and redefine the space they occupied.

 

Reclamation

 

City Rising focuses on several communities in California.  They are Santa Ana, Long Beach, Sacramento, Oakland, Boyle Heights and South-Central Los Angeles.

 

One poignant part of the documentary is discussing the issue of racial covenants which made it illegal to sell property to certain groups.  Many people are ignorant to this reality and dismiss it as being made up or something which happened lifetimes ago.  The sad reality; it is current history regarding real estate ownership.  Assemblyman Hector De La Torre lives in South Gate, CA.  The discussion centered around him showing the covenant as part of the land title documentation which years earlier would have prevented him from purchasing the very home where he was being interviewed.    Even though the practice was outlawed through fair housing legislation, it remained as permanent language within the documentation.  Using his activism as a political leader he created a law which would have required title companies to remove the language from the report.  Unfortunately, even though the law passed, then Governor Arnold Schwarzenegger vetoed it and the language remained as a reminder of the discrimination meted out against certain groups.

 

The documentary does a good job in highlighting the effects of gentrification.  Even though race plays a huge role in its impact, the subtle reality is the class divide or the “haves versus the have nots.”

 

Cities that were once thought of as “dead” have sprung to life through various forms of reinvestment.  Interestingly many of the families who fled the urban core, see their offspring take on a renewed pioneering spirit to reclaim areas.  With their economic status, they are able to pick up properties, many on the cheap and with modest investment, transform what was unthinkable into havens of a new lifestyle.  Through this process and focus on redevelopment they are able to attract stores and services which provide a great opportunity, assuming one has the money to operate.

 

People can only buy your property if you agree to sell

 

Who doesn’t want to live in a “nice” neighborhood?  The problem with gentrification and this is where CITY RISING shines is as new people reclaim or move back into neighborhoods,  the issue is what happens to the current occupants?  Do they just disappear?  Do they escape in the middle of the night?  For many it’s pure economic, especially the vast majority who are renters.  Those who reclaim properties and invest in the restoration are not motivated by some benevolent gesture, but from an economic perspective so it boils down to return on investment.  The result is the rise of home prices as well as the rise of rents.  Many occupants simply become priced out and that is the ire of those who oppose gentrification.  The community they thought they knew……no longer exist, so they must rebuild their lives or try to coexist with their “new neighbors.”    Some do it very successfully, most don’t because they do not have the leverage of home ownership.

 

There is much more to this topic.  The causes and effects are worthy of examination.  This documentary does an excellent job in creating a foundation for you to move forward.

 

See the documentary HERE.