For the second straight week, average long-term U.S. mortgage rates inched up this week as financial markets awaited the Federal Reserve's crucial decision on interest rates.
Mortgage giant Freddie Mac said Thursday the average rate on a 30-year fixed-rate mortgage edged up to 3.91 percent from 3.90 percent a week earlier. The rate on 15-year fixed-rate mortgages rose to 3.11 percent from 3.10 percent.
Capping months of feverish speculation, Fed policymakers may finally raise a key interest rate on Thursday. A rate hike by the Fed could bring higher rates for home loans. The Fed has kept its key short-term rate at a record low near zero since the financial crisis struck seven years ago.
With the job market now considered essentially recovered from the Great Recession, many economists say it's time to start edging toward normal rates. Others argue that many other factors — notably a sharply slowing China, the tumult in markets and persistently less-than-optimal inflation — raise serious concerns. They say the Fed should wait, until later this year or even 2016.
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.
read more: http://www.latimes.com/business/la-fi-mortgage-rates-20150917-story.html
Friday, September 18, 2015
Monday, September 7, 2015
Introducing the Kosher HECM Reverse Mortgage
The kosher stamp on a food means that it has been certified as fit for human consumption. We have long needed a comparable certification process applicable to financial instruments sold to consumers, with the need most pronounced for the more complex instruments. HECM reverse mortgages are at the top of that list. They are extremely complex, and markedly different from the standard mortgages that many seniors learned about when they took one earlier in their lives to purchase homes.
This article summarizes the dysfunctional features of the existing non-kosher market, and describes the major features of the kosher version.
Existing Market Failure
The mainstream HECM market is the most dysfunctional of all the major financial service markets. Lenders don't display their prices anywhere, and borrowers don't price shop. Most originators always charge the maximum origination fee allowed by law, regardless of how much they are making on the transaction. Markups are 2.5 to 3 times larger than in the standard mortgage market, though the work load is much the same. The details are set out in my Wharton working paper HECM Reverse Mortgages: Is Market Failure Fixable?
The Kosher HECM is designed to maximize the benefits a senior receives from a reverse mortgage, and avoid the hazards inherent in a very complicated transaction. The following are its major features as compared to the non-kosher alternatives.
Features of the Kosher HECM
Optimizing the Selection of HECM Options With the Kosher Calculator: A major positive feature of HECMs is the wide range of options available to seniors for withdrawing funds. They can draw cash up front, get a monthly payment for a specified period, take a credit line, or combinations of two or three of these. In addition, they can alter these combinations in the future. But this introduces enormous complexity, and a danger that the borrower may make poor choices.
To reduce this risk, we created a free Kosher HECM calculator that allows a senior to see exactly what the options are in the sense of, e.g., "If I take less of this, how much more can I draw of that?" The calculator determines option amounts using the lowest of the competitive prices posted by participating lenders. It also shows the combination of interest rate and origination fee that generates the lowest cost over the borrower's time horizon. In addition, the calculator shows the changes in the senior's future finances that would result from any combination of draw options taken now.
The Non-Kosher Alternative: No existing calculator shows users the tradeoffs between different draw options, or the consequences for their future finances. Part of my game plan is an offer to license and maintain the Kosher HECM calculator at no charge for HUD, the Consumer Financial Protection Bureau, and perhaps others.
Optimizing the Selection of HECM Options With Disinterested Option Experts: Because not all seniors can navigate the Kosher HECM calculator on their own, we have created a group of "option experts" to offer seniors free and disinterested help in assessing Kosher HECM options when they are in an exploration stage. In addition to my staff, the option experts are a select group of reverse mortgage brokers and loan officers who are proficient in the use of the calculator, who will advise on how best to integrate an HECM into a longer-range retirement plan, and who provide their services pro bono.
Seniors are assigned to an expert who is not licensed to originate loans in the senior's state. This eliminates any financial inducement to steer a senior in one or another direction. The experts have no financial interest in whether or not the senior ends up with a HECM.
The Non-Kosher Alternative: Draw option decisions are often made haphazardly, usually to meet pressing financial needs. There are no financial tools that balance one type of draw against others or project results over future years.
see more: http://www.huffingtonpost.com/jack-m-guttentag/introducing-the-kosher-he_b_8096962.html
This article summarizes the dysfunctional features of the existing non-kosher market, and describes the major features of the kosher version.
Existing Market Failure
The mainstream HECM market is the most dysfunctional of all the major financial service markets. Lenders don't display their prices anywhere, and borrowers don't price shop. Most originators always charge the maximum origination fee allowed by law, regardless of how much they are making on the transaction. Markups are 2.5 to 3 times larger than in the standard mortgage market, though the work load is much the same. The details are set out in my Wharton working paper HECM Reverse Mortgages: Is Market Failure Fixable?
The Kosher HECM is designed to maximize the benefits a senior receives from a reverse mortgage, and avoid the hazards inherent in a very complicated transaction. The following are its major features as compared to the non-kosher alternatives.
Features of the Kosher HECM
Optimizing the Selection of HECM Options With the Kosher Calculator: A major positive feature of HECMs is the wide range of options available to seniors for withdrawing funds. They can draw cash up front, get a monthly payment for a specified period, take a credit line, or combinations of two or three of these. In addition, they can alter these combinations in the future. But this introduces enormous complexity, and a danger that the borrower may make poor choices.
To reduce this risk, we created a free Kosher HECM calculator that allows a senior to see exactly what the options are in the sense of, e.g., "If I take less of this, how much more can I draw of that?" The calculator determines option amounts using the lowest of the competitive prices posted by participating lenders. It also shows the combination of interest rate and origination fee that generates the lowest cost over the borrower's time horizon. In addition, the calculator shows the changes in the senior's future finances that would result from any combination of draw options taken now.
The Non-Kosher Alternative: No existing calculator shows users the tradeoffs between different draw options, or the consequences for their future finances. Part of my game plan is an offer to license and maintain the Kosher HECM calculator at no charge for HUD, the Consumer Financial Protection Bureau, and perhaps others.
Optimizing the Selection of HECM Options With Disinterested Option Experts: Because not all seniors can navigate the Kosher HECM calculator on their own, we have created a group of "option experts" to offer seniors free and disinterested help in assessing Kosher HECM options when they are in an exploration stage. In addition to my staff, the option experts are a select group of reverse mortgage brokers and loan officers who are proficient in the use of the calculator, who will advise on how best to integrate an HECM into a longer-range retirement plan, and who provide their services pro bono.
Seniors are assigned to an expert who is not licensed to originate loans in the senior's state. This eliminates any financial inducement to steer a senior in one or another direction. The experts have no financial interest in whether or not the senior ends up with a HECM.
The Non-Kosher Alternative: Draw option decisions are often made haphazardly, usually to meet pressing financial needs. There are no financial tools that balance one type of draw against others or project results over future years.
see more: http://www.huffingtonpost.com/jack-m-guttentag/introducing-the-kosher-he_b_8096962.html
Tuesday, September 1, 2015
Freddie Mac Issues Outlook for 2015 and 2016
Freddie Mac has now released its monthly Insight & Outlook for August of 2015. While the group is saying that there is no single statistic pegging when a housing market is overvalued or likely to fall, the real goodies are highlighted in some of the basic statistics and forecasts. Included is an infographic on Freddie Mac’s economic and housing market projections for the rest of 2015 and for 2016.
Refinance activity is driving much of the mortgage market right now. They noted:
Due to stronger-than-expected refinance activity and home sales, estimate of 2015 mortgage originations have been increased to $1.45 trillion and 2016 originations to $1.3 trillion.
Increased projection of 2015 home sales to 5.73 million units, which would be the best year since 2007.
Revised 2015 refinance share up to 46% of all single-family mortgage originations.
Here were some of the second quarter refinance highlights for 2015:
Cash-out refinances increased from 27% of refinances in the first quarter of this year to 34 percent in the second quarter. A year ago, the cash-out share was 22 percent. During the housing boom, the cash-out share peaked at 89 percent in the third quarter of 2006.
An increasing share of refinancing borrowers chose to shorten their loan terms. Of borrowers who paid off a 30-year fixed-rate loan in the second quarter, 40 percent chose a 15-or 20-year loan, compared to 39 percent in the first quarter.
Freddie Mac compared actual losses on low down payment loans to losses on 20% down payment loans over the 10-year period 2003-2013. This includes the housing crisis, as follows:
30-year fixed rate loans with 3% down payments were 17% riskier than 20% down payment loans over that period. They did note that it was “only” that much riskier.
7/1 ARMs were 155% riskier than 30-year fixed rate mortgages over the same period.
5/1 ARMs were 5-times as risky than 30-year fixed rate mortgages over the same period.
On affordability, Freddie Mac said that there is a surprising amount of disagreement among the various measures of overvaluation. The same metro area may be tagged as overvalued by one metric and undervalued by another measure.
An image of a table has been provided from Freddie Mac, along with 2015 and 2015 outlooks in economic readings and on housing statistics:
Read more: http://247wallst.com/housing/2015/08/31/freddie-mac-issues-outlook-for-2015-and-2016/
Refinance activity is driving much of the mortgage market right now. They noted:
Due to stronger-than-expected refinance activity and home sales, estimate of 2015 mortgage originations have been increased to $1.45 trillion and 2016 originations to $1.3 trillion.
Increased projection of 2015 home sales to 5.73 million units, which would be the best year since 2007.
Revised 2015 refinance share up to 46% of all single-family mortgage originations.
Here were some of the second quarter refinance highlights for 2015:
Cash-out refinances increased from 27% of refinances in the first quarter of this year to 34 percent in the second quarter. A year ago, the cash-out share was 22 percent. During the housing boom, the cash-out share peaked at 89 percent in the third quarter of 2006.
An increasing share of refinancing borrowers chose to shorten their loan terms. Of borrowers who paid off a 30-year fixed-rate loan in the second quarter, 40 percent chose a 15-or 20-year loan, compared to 39 percent in the first quarter.
Freddie Mac compared actual losses on low down payment loans to losses on 20% down payment loans over the 10-year period 2003-2013. This includes the housing crisis, as follows:
30-year fixed rate loans with 3% down payments were 17% riskier than 20% down payment loans over that period. They did note that it was “only” that much riskier.
7/1 ARMs were 155% riskier than 30-year fixed rate mortgages over the same period.
5/1 ARMs were 5-times as risky than 30-year fixed rate mortgages over the same period.
On affordability, Freddie Mac said that there is a surprising amount of disagreement among the various measures of overvaluation. The same metro area may be tagged as overvalued by one metric and undervalued by another measure.
An image of a table has been provided from Freddie Mac, along with 2015 and 2015 outlooks in economic readings and on housing statistics:
Read more: http://247wallst.com/housing/2015/08/31/freddie-mac-issues-outlook-for-2015-and-2016/
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