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.
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.
Above caption. Federal Reserve Chairman Jerome Powell Holds A News Conference Following Federal Open Market Committee Meeting
WASHINGTON, DC - SEPTEMBER 26: Federal Reserve Board Chairman Jerome Powell speaks during a news conference on September 26, 2018 in Washington, DC. The US Federal Reserve raised the short-term interest rates by a quarter percentage point on Wednesday, the third increase of the year, and signaled two more hikes were coming in 2018 and four in 2019. (Photo by Mark Wilson/Getty Images)
[Washington, DC] In a move that was forecast several weeks ago, this afternoon Jerome Powell, chairman of the Federal Reserve raised the discount rate to 2.250%. This move occurred to the chagrin of his boss and the person who appointed him Donald Trump, as since June of this year he has been quite vocal that Powell should not raise rates.
The Feds are non-partisan and to effectively operate are independent of political interference. As customary, president’s and those in leadership refrain from making comments about monetary policy. That is most, except Trump who once again has demonstrated his lack of understanding regarding political protocol.
“I’m not thrilled,” Trump said in an interview last month
Powell has stood firm and justified the move to control a positive economy. The discount rate is the cost commercial banks pay for funds. Their impact does not immediately affect consumers but they typically result in higher borrower costs.
You can’t have it both ways
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent. Jerome Powell, Fed Chairman
Ever since the financial meltdown of 2008, systemic changes were adopted to strengthen the economy. In Trump’s case, even though it is very tough for him to admit he inherited an economy that had all the signs of positive growth, as a practical measure it must be properly managed. As the economy moves forward, it is the Fed’s who are in control of monetary policy and to manage interest rates so that inflation of other negative factors are mitigated.
The nine member panel of the Federal Reserve Open Market Committee voted unanimously to support the increase.
Real estate is a key component of the U.S. economy. Aside from providing basic shelter, it is a commodity that consumers desire to purchase and a mortgage is used to finance the transaction. Yet, it was the environment in 2008 where an industry as we knew it offered slim prospects of recovery.
Fast forward to 2018, recovery is obvious. home prices continue to climb to record levels leaving many to wonder if they will ever be able to afford a home, let alone experience the “American dream?” At the same time if must not be discounted that millions, for various reasons lost homes. For them, then and now home-ownership represents the biggest transaction they will complete in their lifetime. Likewise, it represents the biggest financial asset.
For some 2008 seemed like a lifetime ago. No doubt it was a scary time especially for those who were part of the economic meltdown. Cash was tight, employment or the ability to earn a living was in great jeopardy, homes which were treasured started disappearing in record numbers – like never seen before. Many were lured into the notion property appreciation was constant and even though they may have bet on risky mortgage products, they felt confident they would be able to refinance out of any calamity. Political leaders labeled the period as one not seen since the great depression of the 1930’s.
The crisis erupted in 2008, however signs were simmering that something might be amiss as early as 2005. Interestingly it was a common refrain for the very political leaders and even industry leaders to target the culprit as subprime lending. The problem with that assessment is it is incorrect, at least from a practical definition.
Prior to subprime coming into the mortgage vernacular in the mid 1990’s, most mortgages were considered prime. You had to fully qualify, including for some with what appeared to be exhaustive documentation. . Your credit was not required to be perfect as long as any blemishes could be documented and explained.
Sub is a suffix and means “less than” or “below.” Unfortunately, some would have you believe it meant bad credit, inferior housing or something that was substandard. No doubt many who obtained mortgages were in that population but there was a good percentage who in fact had good credit as well as good property.
A more reasonable understanding is defining subprime as synonymous with alternative. In other words, subprime mortgages merely meant the borrower could not qualify for a prime mortgage. As stated, there were millions of borrowers whose credit was above average and the alternative mortgages became a solid vehicle for them to obtain affordable mortgages. Why was an alternative mortgage necessary? For some, they could not fully document their income via traditional methods. However, they had just as much money in their bank accounts as normal borrowers and their credit was just as solid. Lenders recognized this challenge thus alternative mortgages were born and the market took off.
As lenders created alternative mortgages they became part of the overall subprime population. However, it did not have the negative connotation subprime became labeled. That is why blaming the crisis on those on the fringes with credit issues appears an easy explanation but that short-changes the reality of the subprime market.
There were many reasons which led to the crisis that erupted in 2008. Experts have suggested factors germinated as early as 2006 and the signs of a downfall was apparent. The only problem was many were in denial and for a good chuck of that population it was simply too late to recover.
“I’ve been in this business a long-time and have trained real estate professionals all over Southern California. I’m telling you, the market is about to crash! The late Jerry Timpone, 2006
In 2008 the average home price in Southern California was $429,000. However, it must be noted that due to the crisis millions of homes were being snapped up for far less (via foreclosure and other issues which left many homeowners fleeing their properties).
Compared to today’s average home price of over $600,000, even $429,000 seems like a steal! 2008 was a turbulent time and compared today, it is a thing of the past. During that ten-year period many who held onto their homes have been able to secure a more fixed payment mortgage, thus the surprises of a fluctuating mortgage which was popular during the early to mid-2000’s has been mitigated.
Companies/Business were imploding as we Cities
As indicated real estate, specifically the mortgage sector is important to our economy. As the implosion of businesses picked up steam, the residual effect found cities and communities in great peril. They too were dealt blow after blow as neighborhoods became decimated, thus reducing taxes cities need to operate.
While economic challenges are not the main concern as it was in 2008, today the primary concern is having enough income and down payment to snag a property. Of course, even those who may be in a qualifying position are contemplating the definition of a “fixer-upper” or considering moving outside of the metropolitan area, which years ago would have been unthinkable.
So, average prices come and go. Economic conditions are constant but looking back ten years is important to recognize the cyclical nature of real estate and realizing that most things are relative. The take-away is if $429,000 was a jolt, and $600,000 redefines sticker-shock, it is a good bet prices will go higher before they go lower.
As for mortgages and looking back ten years, it is a simple equation; people will always have the need for shelter and a good many will be lucky enough to become homeowners. Mortgage lenders will always look to satisfy those borrowers who are seeking affordable financing because assuming everyone has at least twenty percent as down payment and stellar credit would depress the market to a point that is not reasonable. The trick, like any consumer purchase is to properly assess your situation so that you are not forced into a mortgage or a predicament which has the remnants of the 2008 meltdown.
Single Family Residences a 10-year look-back
Single Family Residences
Single Family Residences
Single Family Residences
Condominiums / Co-Ops
Condominiums / Co-Ops
Condominiums / Co-Ops
Condominiums / Co-Ops
* 2018 Median price is for May 2018
N/A – Data not available from source
Note: Movement in regional sales prices should not be interpreted as measuring changes in the cost of a standard home. Prices are influenced by changes in costs and variations in the characteristics and size of homes actually sold.
The housing crisis was an important historic event. Fred Thomas, III tags himself as a “student” of the mortgage industry and speaks with credibility having been employed at Countrywide Home Loans, IndyMac Bank and Bank of America. He is currently working on a book which takes a look at the rise and fall as well as the importance they played and the development of the industry.
As expected this week’s mortgage numbers saw a slight increase of two basis points to come in at 4.54% The increase is predicated on economic data which continues to show improvement. Another key factor to support the notion that rates will continue to climb is the latest jobs report which saw new jobs at 201,000.
While rates have risen, the biggest dilemma for those who desire a new mortgage is finding homes that are within their affordability range. As an example, in a year over year comparison rates have increased nearly seventy-five basis points or three-quarters of a percent. So, while it is great the economy is moving forward, consumers must deal with the reality that cost of goods and services also increase.
The result is affordability remains a solid metric but the key with mortgage rates is timing and being in a position to qualify and take advantage of mortgage rates based on your budget.
Average Mortgage Amount – One Year Analysis
While the mortgage of choice remains a 30-year fixed rate based on its amortization to provide more affordable payment, the average mortgage term is approximately seven years (based on data that consumer needs of refinancing).
As mentioned rates have risen, likewise the economy has also strengthened. For most consumers it’s a dollars and cents evaluation, so in their mind the rise is rates is of concern or something that impacts their buying power. As an example, nationwide the difference of $130 each month translates into $1,560 annually or $10,920 based on a seven-year term. Specifically for those in California the numbers are $155 monthly or $1,860 annually which is $13,020 based on the seven-year term.
The question remains; can your budget handle the increase? does the touted tax-cut provide enough money back into your budget to mitigate the increase?
A snapshot of this week’s mortgage rates (popular programs)
Mortgage rates inched up this week to land at 4.520%. The one basis point rise in week over week reporting is not the biggest news. The rate represents the benchmark thirty-year conventional mortgage.
Low rates do not mean a thing if you can’t find an affordable home!
For most homebuyers or even those wishing to take advantage of low rates, the trick is having the credit to quality and having the down payment (or sufficient equity). Recently, another element has been added to the equation of securing a home; finding an affordable property. For many the reality of an “average home price” results in sticker shock. Some parts of the country have the price well over $500,000, and that is for first-timers!
The result of would be buyers remaining on the sidelines is a reduction of mortgage applications. If the pace continues, expect lenders to trim staffing so their operations are “right-sized.”
Rates are cyclical and while many in the public policy arena tout a positive economic environment, for homebuyers that news triggers higher interest rates as well as higher home prices.
Here is a snapshot of this week’s rates:
August 30, 2018
Fees & Points
Freddie Mac is an institutional investor and provider of mortgage funds to local lenders who work with consumers but sell the mortgages to them. Each week they publish the mortgage market rate survey which is data obtained from a sample of their pool of lenders.
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.
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.”
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
Fees & Points
** 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.
The news is not enough to create panic but mortgage rates reached their highest level of 2018 and now sit at 4.470%. That is the rate reported by Freddie Mac from their weekly primary market rate survey, which is the industry standard for gauging consumer mortgages. It represents the benchmark thirty-year mortgage. The survey is compiled from a sampling of lenders who sell mortgages to them.
The increase represents a five-basis point increase from week over week reporting. Among other things the rate increase is attributed to the uncertainty over the impact of tariffs which the Trump administration recently announced.
Most consumers understand mortgage rates are cyclical and even the five-point increase would be considered normal movement. On the other hand, those in the market for a mortgage pay attention to trends as positioning is a big factor in determining when to apply for a loan. Purchase transactions are driven by the close of escrow and refinance transactions take approximately sixty days to close. So, if the assumption is that rates will further increase it is more prudent to lock in the rate at time of application. Of course, if your analysis conclude rates might drop, then your strategy might be to submit your application but “float” the rate or lock in at a later time.
The financial projection for 2018 was that rates would increase from their 2017 level. There was much fanfare about the historic tax bill which was passed in December 2017. Hopefully you were lucky enough to receive bonuses touted by the majority political party as well as Donald Trump?
“Still, the vast majority of adults don’t seem to have sensed the effects of the tax cut on their personal finances.” Politico
Although the public still hasn’t been told of how the government plans to pay for the tax cuts which by 2020 will push the tax deficit pass the TRILLION-dollar mark, many have taken the position to support anything which puts a little money in their pocket, even on a temporary basis.
Expect Mark Short to be taken to the woodshed
Perhaps he misspoke but later this week do not be surprised if Trump and his strong allies do not take one of their own directly to the woodshed. Why? There was so much hype in attempting the justify the tax cuts and/or more money in worker’s paychecks, one would surely assume the numbers would be more than five percent!!!!
However, contrary to what the Trump administration has been boasting their own Director of Legislative Affairs and Assistant to the President for U.S. President Donald J. Trump, Mark Short belted out on “Meet the Press” that there is good news as five million people have financially benefited from the tax bill passed in December. The problem with Short’s assessment is while five million represents lots of folk, it represents less than five percent of the total workforce which is nearly 125 million, as reported by the Bureau of Labor Statistics. Wasn’t it presented that nearly every worker would see an immediate gain? Maybe you were one of the lucky five million?
Hear Short’s specific comment at the 40 second mark.
Cost of good increase
Everyone appreciates a good economy. The result is consumer confidence has increased and that is a positive sign which doesn’t get much debate.. The impact for most consumers is even though they have more money in their pocket, the increased cost of goods has eaten away at those gains.
On the mortgage front today’s rate represents a fifty-basis point increase from year over year reporting. The result is the average consumer ($244,000) is paying an additional $102 per month over a tad over $1,200 for the year. Based on those numbers you will need more than a tax cut or bonus to break even.
After approximately two months since taking over the helm as the chairman of the Federal Reserve, Jerome Powell announced a rate increase. The move was expected as while rates are cyclical they are based on a variety of economic factors. Powell and the rest of the board agreed recent unemployment numbers, household confidence and the positive direction of the economy provided justification of moving the rates one-quarter of a percent or to the highest level of the year at 1.750%.
The formal announcement via a press conference followed the Federal Open Market Committee (FOMC) meeting held earlier today. The vote was unanimous as all members of the FOMC voted to increase the rate.
“The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.” Federal Reserve.
The Federal Reserve is responsible for U. S. monetary policy and when there are positive economic signs, rate increases are a necessary buffer to control inflation or other negative impacts. During the press conference, Powell mentioned at least two more rate increases are scheduled for 2018.
The fed rate is related to what banks are charged to obtain funds.
[McLean, VA] For the eighth consecutive week mortgage rates have continued their climb. Now at 4.40% which is just two basis points in week- over-week reporting, it represents the highest mark of 2018. The increase did not catch anybody off guard as the 10-year Treasury climbed over 2.90%. The 10-year Treasury is known as the long-term index which affects mortgage rates.
Going forward, rates are projected to keep climbing. Also, based on economic movement experts have suggested the Fed is positioned for three and perhaps four discount rate hikes for 2018. This is designed to counter inflationary worries and keep the economy in check.
Consumers haven’t pushed the panic button as when evaluating year over year data, mortgage rates have only increased fourteen basis points. That difference is well within the range of mortgage rate movement as they are very cyclical.
Rate recap for the week:
February 22, 2018
Fees & Points
Freddie Mac known technically as Federal National Home Loan Corporation purchases mortgages from it approved mortgage originators. The primary market rate survey is the industry standard published weekly and is used by consumers and industry experts to gauge rate movement.