Mortgage Shopper

Mortgage Lenders: Small U.S. home loan lenders have reform concerns

Mortgage lenders and community bankers across the US are lobbying lawmakers over proposed new federal home loan credit rules as the end on the discussion period looms.

The new mortgage rules seek to reduce risk-taking on mortgage lending, but mortgage lenders say the guidelines could hurt small banks and would be bad for credit markets. The Securitized Lenders rules are part of the recently passed Dodd-Frank "Wall Street overhaul bill".

Mortgage Securitization and home loan lending Rules under contention

Now US finance regulators need to establish guidelines for originators of securitized loans, to prevent the problems that lead to the US financial meltdown.

One of the key aims of the legislation is to reduce risk-taking.

The legislation proposes to do that by enforcing mortgage lenders/originators to hold a 5 percent stake in any debt instrument pooled in the secondary market.

Will small banks leave mortgage lending?

Many people believe that making the lenders partly responsible, and tied to the home loan outcomes will see many banks leave mortgage lending, fearing the consequences of being saddled with "hurt money".

The fear is that many home buyers will be denied access to mortgage credit should mortgage lenders leave the housing market.

Is the 20% down & equity rule too harsh or a healthy safety lending margin?

The law gives an exemption for mortgages deemed to be safe enough and gave regulators the task to define such suitable loans.

Regulators have proposed an exemption for the so-called qualified home loans when borrowers make 20 percent or more down payments or equity in the home for refinance purposes.

Some believe that this should be reduced to 10 percent as 20% would kill home loan lending and home values would sink lower still.

 

Source: Mr Mortgage

Reverse Mortgages: Why Are Big US Banks Exiting The Reverse Mortgage Business

Bank of America and Wells Fargo are not only two of the biggest banks in the US, they are in the top 25 Enterprises in the World. So why have have left the reverse mortgage business within months of one another?

SImple Economics have driven Wells Fargo and Bank of America from the reverse mortgage business.

Both Wells fargo and Bank of America have ceased originating reverse mortgages because the economics of that loan product have come under pressure.

With the two biggest players originating nearly half of all reverse mortgages their departure will leave a big dent in seniors being able to take advantage of these loans in the US.

What are Reverse Mortgage?

It is where the bank buys back the equity of your home, and a method for senior home owners [62+], can supplement their retirement incomes in return for that equity.

Our homes are generally our biggest asset and if you are over 62 years old and require supplementary income to live on then a reverse mortgage may be an option you might wish to consider.

Reverse mortgages allow older homeowners to tap into their their home equity. Instead of the homeowner making repayments, the banks pay the borrowers.

As before, homeowners continue to pay rates taxes and insure and maintain the property. And that is the fly in the ointment. Because many homeowners cannot afford the home insurance and the rates and taxes and maintenance, so the banks risk holding an asset with a falling value and having to foreclose on seniors. Not a good look for a bank, though this is yet to happen currently.

And the other problem is the continued slide of home values in the US, and rising taxes for the homeowner to pay. As a result, banks have noticed a rise in "technical defaults", when homeowners fall behind on their taxes or homeowner’s insurance and maintenance, all of which need to be met to avoid foreclosure. About 5 % of reverse mortgages are apparently in default on at least one of those items.

Falling home prices mean less people can qualify for a reverse mortgage

Less borrowers can qualify right now in any event.  Because falling house prices mean that fewer properties will qualify for reverse mortgages. In many cases a loan modification would make more sense, to save the homeowners from foreclosure.

The final straw is that lenders cannot assess a borrower credit and ability to repay, so banks were flying blind in approving these loans. In fact a lender cannot decline the borrower, because the loan is deemed an asset loan, and as such based solely on the value of the property.

Why Reverse Mortgages used to be such a great idea for lenders and borrowers.

Before the Global Financial Crisis and mortgage meltdown in the US, the typical borrower would get the reverse mortgage, and equity in the home would continue to build as the asset value increased.

This would provide borrowers with more options — like refinancing — should they fall on hard times. Declining home values have changed that paradigm for both bankers and consumers. Borrowers have not been able to pull out as much money.

The final nail in the coffin for reverse mortgage loans

At the same time, the government has also tightened its withdrawal limits, and minimum equity levels. SO with house prices falling it means that the homeowners will get less if anything for a reverse mortgage. This looks like continuing as more home equity goes "under-water".

Both Wells Fargo and Bank of America will continue to service their existing reverse mortgages. Thye just will not originate more of these loans.

Where to go for a reverse mortgage now?

Finding a reverse mortgage lender will be more difficult, but not impossible. The exit of Bank of America and Well Fargo will be felt as they provided nearly half the loans. But the other players are expected to raise origination volumes to cover about half the shortfall. The other borrowers may miss out. For many of them the loan modification route may make more sense.

Housing Market : How to fix Australia's housing shortage & high house prices

Is increasing land supply the real key to bring down house prices?

Australia's housing market is a key driver of the domestic Australian economy. This article attempts to shed light on the true cause of our high home prices and that over priced land is the the real cause of our our over priced homes.

The case for massive land development for new home construction

New homes not only provide work for hundreds of thousands of construction workers and tradies, they are the main customers of hardware, timber, roofing, and concrete industries.

Once a new home is built there is a flow on demand for cabinetry, curtains and blinds, kitchen equipment, stoves and appliances, furniture, tiles and carpets, landscaping and out door living, with patios, sheds, swimming pools and spas. Yes, its big business and it drives much of the big ticket retail spending in Australia.

This is the type of spending that has stopped in recent months, and the reasons are obvious, New home sales are down, especially in flood affected Queensland.

Is Housing Australia's biggest asset?

The housing market has a $4.2 trillion capitalised value

Housing construction is at a 12 month low, and that theretail sector is having the worst period in 20 twenty years, we can quickly see that the two powerhouses of Australia's domestic economy are connected, and that when new home sales fall, so does retailing.

In fact I would say that there is also a smaller connection with established home sales and retail sales of house hold items, simply because moving home creates new needs for home buyers that these retail sales satisfy.

The problem for Homeowners credit over supply is being reigned in.

In case you haven't noticed f you are a homeowner, expect to see your home values shrink. SInce the 1970's House prices have risen above inflation and income growth. The main driver was the baby boomers buying their first home, their second home and until recently, investment properties.

Many baby are now slowing down, and are cashing in to downsize, become grey nomads or retire. In the future these homeowners will move to retirement villages and nursing homes.

Average home prices in Australian capital cities fell 2.1 per cent in the March quarter, according to the Australian Bureau of Statistics.

This will continue as baby boomers leave the housing market, sell off their investment properties and hit the road as grey nomads. Their spending patterns will change dramatically once this occurs.

The impact of the GST on House Prices

The GST and first home owners grant was a major driver inflating house prices
The worst thing that the Howard Government did to house prices was the GST. Besides lifting house construction prices instantly, it also drove many older small builders out of building and into early retirement.

That was followed by the First Home Owners Grant, which added fuel to the home prices inflation fire.

Many people point to the First Home Owners Grant as the problem for raising house prices. They forget that this was brought in because of the GST to compensate the first home buyer for increases in the cost of building a home, brought on by the GST.

One or the other would have increased prices of all homes, The two together created a boom for real estate sales that rippled through the past decade. That caused the interest rate hikes we have to wear now.

When you consider that this was at the same time as the last wave of the baby boomer effect in 2002, a perfect storm for inflation was created. Now the new first home buyers have to pay for all of that, and many are not interested in homeownership. They have better things to do with half their take home pays.
After all, renting is cheaper, and you can invest the difference in a liquid investment, and with the recent figures of falling house prices and the Reserve Bank of Australia's  constant threats to raise interest rates, its easy to understand why new home buyers are being over cautious.

Land inflation the hidden cost of new homes, not construction costs

As I have been saying for some time, GST have increased new home costs, as have the increased requirements in building codes around Australia. But these have added little to the cost of a new home. The main cost increases have been due to land cost increases and Government charges on land development.The drivers for those increases ate the First Home Owners Grants at the same time of land development shortages and deliberate scarcity sales tactics by land developers.

In the year 2000 a block of land was around $70,000 [or less]. In 2010 the cheapest block on the Sunshine Coast was $294.000. Yet land was not supposed to have GST on it!If you leave things to the "free market" you will get ripped off.

Some say that Australian houses are ''overvalued'' and should be halved. I don't believe that homes in Australia are over value is nearly as high, or that house prices will fall much more than they have already. But they are too high right now.

But our house prices being the world's highest, does not make sense, given our abundance of land. Our home values are above that of Hong Kong. But we have abundant land and Hong Kong is a tiny island and has land scarcity. Can you see something wrong with this?

Housing demand is elastic. It depends on the home prices.

Can you remember when people were saying we were 200,000 home short of what we need?Well what happened to all those house buyers? They have evaporated

Some would argue that house affordability is driven by interest rates, others by supply and demand, others by incomes.

I believe that these are silly arguments. As we in Australia have abundant land on which to build, it does not make sense that land prices are too high and in short supply.

Government needs to step in and ensure Land is developed to exceed housing demand if it wants homes to be affordable.

We cannot expect private enterprise to fix this, because land developers benefit by high prices, and high prices are driven by scarcity, which they use to keep prices too high.
Also we can't expect builders to build homes before they have house buyers, with the purpose of lowering house prices. That would not make sense.
What is required is a Government plan to oversupply the residential housing land market, for sale at half the current prices and restrict the size of homes, rather than have covenants for ever larger homes.
This will boost home building, and mean that first home buyers will choose a new home over an established one, and this will reduce established home prices. So interest rates will have little effect and affordability will not be a limiter.
We are spending too much on homes and banks are getting the biggest benefit, because the proportion of our wages are been received by banks.

The solution to Housing Affordability and reviving the building industry is halving land prices.

The solution is to bring home prices down over the next 5 years, and the way to do that is to massively oversupply the amount of land available to build on at half the price currently offered. This policy would ensure that mortgage stress is a thing of the past and that housing affordability is never an issue for new home buyers.

Author: Mr Mortgage