The New Administration and the Future of Housing

White House BHDonald J. Trump was inaugurated as the 45th President of the United States on Friday afternoon, and those in the housing industry are expecting that the changes promised by the new administration will be beneficial to the housing industry.

An estimated 800,000 people gathered at the nation’s Capitol to witness the swearing in of Trump and his Vice President, Mike Pence. Trump’s inauguration speech was heavily focused on returning the country back to the American people and putting American people first.

“This moment is your moment. It belongs to you. It belongs to everyone gathered here today and everyone watching all across America,” Trump told the crowd gathered for the inauguration. “This your day, this is your celebration, and this, the United States of America, is your country. What truly matters is not which party controls our government, but whether our government is controlled by the people. January 20, 2017, will be remembered as the day the people became the rulers of this nation again.”

Among the changes that Trump or his cabinet appointees have promised to make are rolling back regulations for housing, which greatly increased in response to the crisis of 2008; and ending the government’s conservatorship of Fannie Mae and Freddie Mac, which was intended to be temporary when it started in September 2008.

“I welcome the inauguration of Donald J. Trump as President of the United States and the change a new administration will bring to the nation,” said Ed Delgado, President and CEO of the Five Star Institute and a former executive with Wells Fargo and Freddie Mac. “As a successful and prominent real estate developer, I believe President Trump is uniquely qualified to address the concerns and challenges facing the housing and mortgage markets with sound policies and strong cabinet appointments.”

Trump has also promised reform to the Consumer Financial Protection Bureau, which Republicans have long criticized as unaccountable and overreaching. In particular, Republicans have been critical of the CFPB’s handling of enforcement activities within the mortgage industry, which they believe have made mortgage loans more expensive and more difficult to obtain.

2-1 Donald Trump
President Donald J. Trump
“I hope both the Trump Administration and Congress include on their ‘priority list’ how to bring some stability and certainty to our nation’s housing finance system,” said Brian Montgomery, Vice Chairman and Co-Founder of the Collingwood Group and a former FHA Commissioner in the Bush and Obama Administrations. “Excessive enforcement actions, coupled with state and federal regulatory reforms, have discouraged mortgage lenders from making any loans that fall outside of the strict boundaries set by CFPB regulations. In the end, prospective homebuyers, including many who are first-time buyers with perhaps a blemish or two on their credit score, are largely shut out of the mortgage market from this stifling of housing credit.”
The homeownership rate in the U.S. sank to a 51-year low in the second quarter of 2016, down to 62.9. It rose by 60 basis points in the third quarter but is still hovering above a record low.

“There is tremendous opportunity,” said Meg Burns, Managing Director of the Collingwood Group. “The Trump leadership team has publicly acknowledged a concern with the regulators’ heavy-handed approach over the course of the crisis. There is a good chance that they will halt the very aggressive enforcement activity. It would be best to return to a monitoring regime that identifies problems and issues, so that they can be addressed and resolved, as opposed to stringent enforcement for the sole purpose of imposing financial penalties. The latter approach has clearly resulted in less lending activity and stifled access to credit.”

For the last several months, the housing industry has been experiencing a shortage of available inventory for sale as demand has outpaced supply, and new construction has not been keeping up with the demand.
“[T]he administration of Donald Trump could take a fresh look at existing regulations across the board, and that could result in new rulemaking to change provisions that are hurting real estate, including provisions in the Dodd-Frank financial services reform law enacted in 2010 in response to the financial crisis,” the National Association of Realtors (NAR) wrote. “NAR analysts say the association might favor easing some Dodd-Frank requirements on community banks, which traditionally provide the bulk of financing for housing construction. Housing starts have been far below what’s needed to meet rising demand, and easing some requirements on community banks could lead to more robust construction lending.”

The inability of Congress until now to address the longstanding issues in the housing industry has had seriously adverse effects for the U.S. economy as a whole, according to Collingwood Group President Brian O’Reilly.
“It’s amazing that something so vital as housing to the overall health of the American economy and the average—is something Congress still can’t rally in support of resolving—especially when the risks associated with continued failure to do so are potentially so serious,” O’Reilly said. “The facts are that housing is a critical component of overall economic health in the U.S. Thus, continued failure by Congress to address housing reform is reckless and irresponsible.”

JPMorgan settles mortgage discrimination lawsuit

JPMorgan settles mortgage discrimination lawsuit

NEW YORK (AP) – Jan. 19, 2017 – JPMorgan Chase will pay $55 million to settle federal charges that independent brokers working for the bank discriminated against minorities seeking home mortgages during the housing crisis.

While the settlement is not a big financial dent to the giant bank, the cases illustrate the depth of the mortgage quagmire that has trailed the financial sector for a decade.

A federal suit filed in Manhattan Wednesday accused JPMorgan Chase & Co. of charging black and Hispanic borrowers higher interest rates and fees for mortgages from 2006 to at least 2009, causing them to pay an average of an extra thousand dollars. The lawsuit alleges that discrimination cost at least 53,000 minority borrowers tens of millions in higher interest payments and fees, in violation of the Fair Housing Act.

The lawsuit said Chase originated about 260,000 wholesale mortgage loans during those years, with 40,000 of the loans going to black applicants and another 66,000 going to Hispanic borrowers. It said the pricing discretion was not based on borrower risk.

The New York bank denied wrongdoing and shifted the blame.

“We’ve agreed to settle these legacy allegations that relate to pricing set by independent brokers,” said JPMorgan spokeswoman Elizabeth Seymour. “We deny any wrongdoing and remain committed to providing equal access to credit.”

While JPMorgan said those involved were independent brokers working under contract for the bank, federal prosecutors said that Chase maintained ultimate control and was “directly and extensively involved” in setting up the deals.

“Chase could have, but failed, to better monitor its wholesale brokers to discourage discrimination against borrowers based on race or national origin,” the lawsuit said.

Meanwhile, the Labor Department on Wednesday said it is suing JPMorgan Chase for discriminating against female workers. The agency said that it found that at least 93 female workers in an investment-bank division earned less than comparable men in the same jobs since at least May 2012.

JPMorgan said it tried to work with the agency and was disappointed that it filed the complaint.

AP Logo Copyright © 2017 The Associated Press, Ken Sweet, Larry Neumeister. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

FHA change could save homebuyers $446 annually

IRVINE, Calif. – Jan. 19, 2017 – An ATTOM Data Solutions analysis found that the average U.S. borrower taking out a Federal Housing Administration (FHA) loan will save an average $446 a year thanks to the mortgage insurance premium reduction taking effect later this month.

Based on a 2016 median sales price of $185,000 for homes with an FHA loan, a monthly house payment – including property insurance and property taxes – at the current annual FHA insurance premium of 85 basis points would be $1,205. After the proposed 25-basis-points FHA insurance premium cut brings the annual insurance premium down to 60 basis points, the monthly payment on the same home would be $1,168 – a difference of more than $37 a month, $446 a year, $2,232 over five years and $4,463 over 10 years.

A total of 13 counties will see an average annual savings of $1,000 or more. Among 444 counties with a population of at least 100,000 and sufficient home price data for sales using FHA loans, those with the biggest potential annual savings resulting from the premium reduction would be:

Santa Clara County (San Jose), Calif. ($1,448)
Honolulu County, Hawaii ($1,399)
Maui County, Hawaii ($1,276)
Alameda County, Calif. ($1,267)
Santa Cruz County, Calif. ($1,253)
Counties with the smallest potential annual savings resulting from the premium reduction would be:

Bay County, Mich. ($193)
Saginaw County, Mich. ($205)
Trumbull County (Youngstown), Ohio ($213)
Rock Island County, Ill. ($238)
Peoria County, Ill. ($241)

“The last FHA premium cut two years ago helped to trigger a relatively short-term jump in home sales to FHA buyers, who are typically first time homebuyers without much saved up for a downpayment,” says Daren Blomquist, senior vice president at ATTOM Data Solutions.

“Prices of homes backed by FHA loans also accelerated higher in the wake of that last premium cut, although that premium cut occurred concurrently with a drop in mortgage rates, a scenario that is less likely this time around,” Blomquist adds.

Foreclosure rates on FHA-backed loans have historically trended higher than foreclosure rates on other loans. ATTOM Data Solutions data shows that 1.07 percent of all FHA loans were actively in some stage of foreclosure at the end of 2016 – nearly twice the foreclosure rate of 0.54 percent on all other loans. The elevated foreclosure rate on FHA-backed loans has stayed fairly consistent historically, but the gap has narrowed and widened somewhat depending on loan vintage.

© 2017 Florida Realtors

Homebuyer challenges: Mortgage rates and prices grow along with competition

LOS ANGELES – Jan. 13, 2017 – Nate Lowenstein has been shopping for a home in Los Angeles, on and off, for more than a year.

His search has been stymied by a stubbornly low roster of homes on the market and the hurdles that come with it: multiple competing bids and higher prices.

“It’s not a great market, from a buyer’s perspective,” said Lowenstein, a lawyer. “The one good thing is that interest rates were quite low.”

As recently as this summer, homebuyers had ultra low mortgage rates on their side. Good news for any borrower, but especially for those in expensive housing markets like Los Angeles, Boston and Seattle.

But that was then. While mortgage rates remain low by historical standards, they’ve risen sharply over the past couple of months, pushing the average rate on a 30-year, fixed-rate mortgage to 4.32 percent the last week in December. That’s was the highest level since April 2014 and well above the year’s average of 3.65 percent.

Economists predict mortgage rates will continue to climb this year, just one of the trends that suggest 2017 could be a more challenging year for homebuyers.

“With higher mortgage rates, you’re increasing the cost, challenging the budgets, challenging the ability to qualify and, as a result, likely reducing somewhat the pool of potential buyers,” said Jonathan Smoke, chief economist for

So far, the rate increases have not begun to worry Lowenstein, who is in the market for a house with at least three bedrooms in L.A.’s affluent west side. His budget: Between $1.6 million and $1.8 million.

“We’re not priced out yet,” Lowenstein said. “But if it goes up to 5 percent or 6 percent, at some point we would be.”

Long-term mortgage rates tend to track the yield on the 10-year U.S. Treasury note. The yield goes down when investors bid up bond prices, as they did following last summer’s vote in Britain to exit the European Union. The move sent long-term mortgage rates tumbling as low as 3.41 percent.

The reverse happened after Election Day. Investors bet that a Republican-controlled White House and Congress will have a clear path to implement policies that will drive inflation and interest rates higher. A sell-off in U.S. bonds drove the yield on the 10-year Treasury note to the highest level in more than two years. Mortgage rates have been inching higher ever since.

But will they continue to do so? Smoke predicts mortgage rates will reach 4.5 percent in 2017. Other economists expect rates to remain above 4 percent but not go beyond 5 percent next year.

That range would mean low mortgage rates compared with the last decade. Average long-term mortgage rates were above 6 percent during the height of the last housing boom, and they hadn’t hit 5 percent before 2008.

So someone looking to buy a home in the next few months doesn’t need to panic, said Svenja Gudell, chief economist at Zillow, a real estate information company.

“My advice to buyers would be to not freak out and feel a sense of urgency,” she said. “If you aren’t able to buy a house at 4.5 percent, you probably weren’t able to buy a house at 4 percent.”

The stakes are a bit higher for buyers in expensive markets, where housing can eat up a much larger share of household income.

Higher mortgage rates could have one silver lining: As some buyers are priced out, sellers may have to be more flexible on prices. Over time, that could help stem home prices.

Low inventory and strong demand helped push prices higher in 2016 at the fastest pace in 10 years, according to an analysis by Zillow. The company predicts that U.S. home prices will increase about 3 percent in 2017, down from a gain of about 6.5 percent this year.

Declining affordability is one reason the National Association of Realtors predicts that U.S. homes sales will rise 2 percent. Compare that to the 15 percent increase in sales through the first 11 months of 2016.

Even buyers who can weather higher mortgage rates may have to brace for a long home search.

The inventory of homes for sale is expected to be tighter in 2017 than in 2016. While it varies by market, nationally, fewer than 1.9 million homes were on the market in November, down 9 percent from a year earlier, according to the NAR.

Homebuilders are not building enough homes to make up for the shortage, citing a lack of ready-to-build land, labor shortages and rising building materials costs.

Homebuyers can also expect to face more competition in 2017 as millennials continue to move from renting to homeownership, particularly in more affordable markets in the Midwest and South.

First-time buyers accounted for roughly 32 percent of home purchases through the first 11 months of 2016, up from 30 percent in the same period a year earlier, according to the NAR.

Affordability remains a hurdle for many first-time buyers, but qualifying for financing may get a bit more accessible in 2017.

Fannie Mae and Freddie Mac increased the limit of the mortgages they will buy from lenders this year. Banks may also have an incentive to loosen lending standards if rising mortgage rates continue to dampen demand for mortgage refinancing.

Advice to buyers

If mortgage rates continue to climb, there are moves that would-be homebuyers can make to better offset some of the higher borrowing costs.

Consider lowering the interest rate by paying a fee to the lender up front, something known as buying down the interest rate. Or go with an adjustable-rate mortgage, which has a low, fixed-interest rate for a few years, typically five or 10, then adjusts to a higher rate.

Another move: Ask the seller to pay the buyer’s closing costs. That can free up more cash for buyers to manage the higher borrowing costs.

Copyright © 2017 The Journal Gazette

FHA lowers borrowers’ mortgage insurance premiums

WASHINGTON – Jan. 9, 2017 – Lower costs are coming for homebuyers seeking a Federal Housing Administration-insured (FHA) mortgage.

FHA announced that it’s cutting annual premiums for mortgage insurance from 0.85 percent to 0.60 percent, a move the National Association of Realtors® (NAR) says breathes new life into the program. With FHA loans, buyers pay mortgage insurance to protect FHA’s funding in exchange for downpayments as low as 3 percent.

“FHA mortgage products exist to serve an important mission: providing homeownership opportunities to creditworthy borrowers who are overlooked by conventional lenders,” says NAR President William E. Brown. “The high cost of mortgage insurance has unfortunately put those opportunities out of reach for many young, first-time- and lower-income borrowers. Now, we have a real opportunity to get back on track.”

Following the Great Recession, FHA increased its monthly mortgage insurance premium from 55 basis points to 90 basis points; then, in April 2013, it increased them again due to post-recession concerns over credit risk and the need to strengthen FHA’s Mutual Mortgage Insurance Fund (MMIF). At the time, however, NAR research found that the overall 80 basis point increase nixed 1.45 million to 1.65 million renters out of the market.

Since then, the MMIF has shown continued good health, including achieving a much-watched capital reserve ratio over 2 percent for two years in a row. In light of that strength, NAR applauded FHA’s move in January 2015 to reduce premiums to 85 basis points, and since then has advocated for a further reduction.

FHA mortgages are important for low- and moderate-income buyers in particular because a lower downpayment is required than with many conventional mortgage options. Buyers with lower credit scores may find more favorable treatment with an FHA loan than a conventional product as well.

“This is a question of simple math,” Brown says. “Every time we cut the cost of mortgage insurance, it means more borrowers meet the debt-to-income ratio required to purchase a home. It follows that dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA. That puts more money in the fund to protect taxpayers – and it puts more families in homes so they can live out the American dream.”

While Brown thanked the FHA and Department of Housing and Urban Development (HUD) for the premium cut, he suggested one other change to “better achieve FHA’s mission” of serving creditworthy families: Eliminate FHA’s “life of loan” mortgage insurance requirement, which forces borrowers to maintain mortgage insurance on an FHA-insured property regardless of their equity position. Borrowers with traditional mortgage insurance can typically extinguish their mortgage insurance once they reach 20 percent equity in the property.

“HUD and FHA leaders are to be commended for recognizing the need we have before us,” Brown said. “Our work continues, but we’re encouraged by today’s announcement.”

© 2017 Florida Realtors


The Washington Post/Getty Images
Mark Hamrick / January 9, 2017
When Donald Trump takes the oath of office Jan. 20, the clock begins ticking on how he will deliver on promises made during the campaign.

While presidents are typically thought of as having the “first 100 days” to get things done, it is unlikely all of his major proposals will be completed during that short window of time.

Fortunately for the new administration, President Barack Obama is leaving his successor a solid economy. It is quite different from the sense of severe crisis which raged as Obama entered The Oval Office eight years ago.

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Where things stand

The stock market’s main averages all notched new records for the first time since 1999 (after a post-election rally).
The job market is steadily improving.
Unemployment is relatively low while consumer confidence is high.
The housing market largely has recovered from the recession-causing collapse.
Auto sales ended the year stronger-than-expected.
Interest rates have risen since election day with expectations of further gains this year.

What to watch

Confirmation of Cabinet Secretaries

A fight is to be expected from Democrats on Capitol Hill, now the “opposition party” in Washington. But watch some Republican Senators pose tough questions to cabinet picks nominated by President-elect Trump. Among them, John McCain and Lindsey Graham will likely raise their concerns about Rex Tillerson’s nomination as secretary of state. As the ExxonMobil CEO, Tillerson has a history of doing business with Russian leader Vladimir Putin. Tillerson’s confirmation hearing is slated for this week before the Senate Foreign Relations Committee.

Tax reform

Both individuals and corporations should get breaks when this “low hanging fruit” legislation is approved and signed by the president. Both the Trump plan as well as a proposal from House Republicans would benefit wealthier Americans most. Democrats will likely seize upon that, charging that Trump campaigned under the banner of helping those left behind by the economic recovery. These are complicated, detail-riddled areas. It would be surprising if this legislation is completed in the first half of the year. Most of the benefits of the tax changes wouldn’t likely come into play until 2018.

Infrastructure spending

As with taxes, here too, the proverbial devil is in the details. Whether it is as large as the billion-dollar package suggested by Trump, or something more modest as the transition team suggests, a key sticking point on new spending on roads, bridges, highways and mass transit will be how to pay for it. Plenty of Republicans (and some Democrats) aren’t fans of allowing the deficit to soar even further. Here too, any benefit from an infrastructure bill probably won’t come until next year.

Repeal Obamacare, replace it later

Republicans are largely united in their plans to get rid of the Affordable Care Act, better known as Obamacare. Legislative action could come quickly, but that doesn’t mean the 20 million Americans covered by the plans would necessarily lose their coverage right away. Since replacing the legislation is the more complicated second part of the pledge, it might be a year or more before actual changes occur. Republicans risk a nasty political backlash since some provisions of the law, such as ensuring coverage for young adult children and for “pre-existing conditions,” are popular. Trump himself has said those provisions should be retained.

Emerging Trump foreign policy

While candidate Trump often touted his experience as a businessman, he lacks substantial foreign policy experience and awareness. In some ways, this seems as the most likely area where he could get tripped up, particularly given what’s at stake in U.S. relations with Russia and China. Commercial and national interests don’t always move along parallel lines. Moscow stands to gain most under the new administration, while Beijing’s risk is to the downside, all with considerable economic and military implications.

Trump as “disruptor”

He overcame the odds, defying naysayers as he won the Republican nomination and the general election. Many Americans want a shake-up in Washington. Now they may get it. We just don’t know what that will look like, but it appears disruptive Trump Tweets will continue to be part of the mix. Unpredictability is one feature of disruptions.

Poll: Outlook for the stock market this year

With double-digit gains for some of the stock market’s main averages in 2016, some investors might be tempted to jump in while the market’s hot. We wanted to know whether people were planning to invest more, less or about the same this year. So we put the question to our Money Masters Facebook group.

Here’s what they told us: A commanding majority, 66 percent said they’d invest “about the same” in stocks this year, compared to 2016.

After that, about 25 percent of those responding said they’d “invest more in stocks.” The small number remaining said they would either invest less or weren’t investing.

That’s pretty bullish and perhaps not surprising given the strong run the market has seen over the past couple of months.