On Tuesday May 30 the Wall Street Journal reported that average credit scores for U.S. consumers reached a record high. After the financial crisis beginning in 2008, the percentage of consumers with poor FICO scores (those deemed most risky) reached almost 26%. According to Fair Isaac, the creator of the FICO model, as of April 2017 the share of risky FICO scores had plunged to 20%.
Several factors were cited for this substantial improvement; among them an improving economy, housing value gains, and low unemployment. But the most important factor seems to be the passage of time. As the Great Recession recedes in our collective rearview mirror, those consumers who experienced serious financial difficulties (delinquencies, foreclosures, bankruptcies) are now seeing those bad marks being deleted from their credit reports. According to a report by Barclays PLC, more than six million U.S. adults will have personal bankruptcies disappear from their credit records over the next five years. No doubt this will translate into even further credit score gains in the near future.
If you or one of your clients have not checked their credit score lately, maybe now is the time to do so. You may be able to save substantial interest expense on your loans.
Have a great week!
Best regards to all!Steven Hofberg Operations Manager Residential Mortgage Center Inc.
There is good news to report this week, and it comes from Fannie Mae. Fannie has implemented some new policies that will make it easier for those owing student loan debt to qualify for a mortgage. I’m sure most of you are aware through media reports or other sources that student loan debt is a significant issue for many graduates these days. In fact, a study just completed by the Federal Reserve Bank of New York found that 44 million Americans have student loan debt, and 7 in 10 graduates in 2015 have debt averaging $34,000. And these figures exclude for-profit institutions. Needless to say, this debt seriously impairs the ability of these graduates to buy a home, or to refinance an existing mortgage, for example, to take advantage of favorable interest rates.
There are three new policies – first, Fannie will offer lower cost cashout refinances (by about 1/8 to 1/4 percent in interest rate) if at least one student loan is paid off with the proceeds; in other words, Fannie will price the loan as a non-cashout transaction, which has a lower rate than a cashout loan.
Second, for student loans in payment status, Fannie will accept the actual payment amount rather than imputing a monthly payment of 1% of the loan balance. The imputed payment usually results in a debt ratio far in excess of that required to qualify for the mortgage.
Finally, if the student loan payments are being made by others (think parents), and a 12 month history can be documented, Fannie will exclude the monthly student loan payment from the borrower’s debt ratio, thereby allowing many more graduates to qualify for a mortgage loan. As an example, suppose an applicant’s monthly salary is $5,000, and they have fixed monthly debt including a student loan payment of $2,500. The debt ratio (called DTI) is therefore 50%, which would not qualify for the new mortgage. However, if the parents have been paying the $500 per month student loan for 12-plus months, it can be excluded, resulting in a DTI of 40% which would qualify.
For more information on this subject or anything mortgage related, please contact Margie Hofberg at Margie@rmcenter.com or call 240-428-1650 x112. Have a great week!
Kindly,Steven Hofberg Operations Manager Residential Mortgage Center Inc.
In the news lately is Dodd-Frank, the law passed in 2010 in an attempt to stabilize the financial system after the crisis of 2008. The main focus of the law was to end the problem of having gigantic financial institutions that were “too big to fail” in order to limit the taxpayers’ liability for bailing out those huge banks. There are as many viewpoints on whether the law has accomplished what was intended or did not as there are financial institutions. Regardless, the new administration has made dismantling of the law a centerpiece of its first 100 days.
According to the Wall Street Journal, White House National Economic Council Director Gary Cohn announced last week that President Trump will sign an executive action that establishes a framework for ultimately removing much of the regulatory system put into place after the financial crisis.
This is an important issue for the big banks (JP Morgan, Citigroup, Bank of America etc.) because one of the main goals of the Trump administration is to reduce the amount of capital the large banks have to hold. The theory is that if they have more money to lend, because of lower capital requirements, then they will be more likely to expand their lending and consequently boost the overall economy. Critics say that lowering capital requirements puts us in danger of another financial meltdown.
It remains to be seen if the Trump administration can successfully dismantle the huge bureaucracy that was created by Dodd-Frank. If they do, it is my opinion that interest rates will fall a bit.
The Department of Housing and Urban Development has announced a reduction in Annual Mortgage Insurance Premiums (MIP), to take effect for FHA loans with a funding date on or after January 27, 2017. This premium applies monthly and is included in your monthly FHA mortgage payment. The reduction in monthly MIP for most FHA loans is 25 basis points (0.250%). Certain FHA monthly premiums have decreased by as much as 0.450%.
The result is that an FHA mortgage is now a much more competitive product for loans requiring mortgage insurance, and in many cases FHA now compares very favorably with conventional mortgage insurance.
For more information, please contact Margie Hofberg at 240-428-1650 x112, or email her at Margie@rmcenter.com.
The Federal Housing Finance Agency (FHFA), which has oversight authority over Fannie Mae and Freddie Mac, recently announced that the base conforming loan limit will increase in 2017 from $417,000 to $424,100. In “high cost” areas such as the Washington DC metropolitan area, the limit for what are sometimes called “super-conforming” loans will increase from $625,500 to $636,150. These limits apply to one-unit properties; higher limits apply to two to four unit properties.
This was the first time since 2006 that baseline loan limits have increased, because the Housing and Economic Recovery Act of 2008 prescribed that while limits could not be decreased in a declining housing market, they also could not be increased until the average U.S. home price returned to its pre-recession level. And now it has, according to FHFA’s housing price index.
The increased loan limits could make it much easier and less expensive for homebuyers and those looking to refinance as the down payment and credit requirements for Fannie and Freddie mortgages are generally more forgiving than those applicable to non-government backed loans, such as true jumbos.
I hope your Thanksgiving was wonderful.
Whew! What a nail biting election. My initial reaction is that I am happy it is over, and I reserve judgment on the rest. Whichever side you are on, life, and the markets, go on.
The first and most obvious thing to notice is the uncertainty generated by the election of President-Elect Trump. Markets dislike uncertainty and almost always react negatively to it. The question for many market participants is whether President Trump will be mostly like Candidate Trump, or will there be some hedging. Initially the stock market futures were predicting a huge (“huuuge”?!) loss on Wednesday, but a well-received acceptance speech by Trump and some pleasantries exchanged by Trump and President Obama seemed to calm the markets down, and in the end the equities markets did extremely well last week.
In the mortgage markets, rates increased by about 0.500%, largely because the yield on the 10 year US Treasury Bond shot up to over 2.000%, the first time in almost a year that it is above that mark. Add that to the widely expected increase in short-term rates by the Fed in December, and an increase in inflation, and you get higher borrowing rates, at least for now.
It is important to note, however, that much of this market activity has as its basis uncertainty, and therefore volatility (the volatility index has risen sharply as well). Many important events are still to come. Among the most important is Trump’s selection for Treasury Secretary. Front runners being discussed are the super anti-regulation Representative Jeb Hensarling (R-Tex), and the CEO of JP Morgan Chase, Jamie Dimon, both of which signal a more business-friendly economy.
Enjoy your weekend!
The UK threw the world a bit of a curveball last week when they voted to withdraw from the European Union. The actual withdrawal will take months, but the global market reaction was instantaneous. Asian and European markets fell 5% or more on Friday, and US market indices fell on average 3.5%. The Dow lost over 600 points.
It’s a cliché but it is true – markets hate uncertainty, and Brexit is the very definition of uncertainty. Most economists expect the economies of the UK and the EU to weaken and the dollar to strengthen relative to those currencies, especially the pound, which fell 10% against the dollar. Also, the Federal Reserve seems likely to hold off raising short-term interest rates even longer, perhaps not until 2017. A stronger dollar will hurt US exports.
Normally a selloff in the equity markets results in lower interest rates, as investors pile into US Treasury bonds, but not necessarily. What you can expect is volatility in the bond market and consequently volatility in mortgage rates. If you are in the market for mortgage financing, we suggest that you keep up with the current market. Give Margie a call to see how rates look from time to time.
Should I refinance my home? This is a question that all homeowners ask themselves whenever they look at their mortgage statement, or see a report in the news about lower interest rates. The obvious answer is to refinance only if you are getting a lower interest rate or a lower monthly mortgage payment. Here at Residential Mortgage Center, we know that there are other attractive reasons to consider refinancing your home beyond the obvious – and that starts with taking advantage of the equity in your home!
Reason #1 – Reduce or eliminate higher interest rate debt
Auto loans, student loans, and even credit cards can have prohibitively high interest rates far above the interest rate you could qualify for on your mortgage. Refinancing your home and taking cash out to pay off higher interest rate debt could be just the thing to improve your cash flow.
Reason #2 – Opportunity for a sound investment
Need money to invest in a business, buy a vacation home, or send a loved one to college? Let the equity in your home work for you by refinancing and using the funds to help reach your financial goals.
Reason #3 – Put your equity to work in your home!
Everyone has a home improvement project that they wish they had the money for – but what if the money for the project was in your home all along? Refinancing and taking cash out can give you the funds you need to renovate your home, whether it’s getting the kitchen of your dreams or a master suite that makes you feel like you are at the spa.
There are plenty of other reasons to make your home work for you – call us to find out whether you can take advantage of your home equity!
Kindly,Steven Rabin Loan Officer Residential Mortgage Center Inc.
At Residential Mortgage Center we feel a responsibility to our community beyond providing excellent service to our clients for their residential mortgage needs. As part of our community outreach, Margie Hofberg has been working with the Collaborative Project of Maryland (CPM) as current Board President to bring the Collaborative Process to families of modest means throughout the state of Maryland.
The Collaborative Process is used to resolve legal disputes outside of court in a civil, respectful manner. It is an out-of-court process that helps the parties come to a mutual and respectful settlement agreement. CPM’s goal is to provide access to the Collaborative Process to parties that would not be able to afford doing so without assistance by offering access to professionals with Collaborative training on a pro bono or low bono basis. CPM is currently working with 44 parties towards these goals.
CPM is now partnering with the Baltimore City Court to become an option for those seeking alternative means of resolution for their legal disputes. The ability to offer residents of Baltimore in need of the Collaborative Process a chance to be matched with volunteer professionals is an important goal for Margie to accomplish during her term as Board President of CPM.
For more information about the Collaborative Project of Maryland, please visit their website. If you have any questions in regards to the collaborative process, please contact Margie Hofberg.
Look out your window and you will most likely see snow on the ground – and after the blizzard last week it might seem like spring couldn’t be farther away. We aren’t sure whether Punxsutawney Phil will see his shadow and sentence us to six more weeks of winter, but in terms of interest rates and the housing market, spring is definitely coming early! Despite the Federal Reserve raising the discount rate at the end of last year, leading financial experts to speculate that interest rates would rise, mortgage interest rates have actually decreased slightly since the start of 2016. While unlike that famous groundhog we can’t predict the future, hopefully interest rates will stay low and lead to an exciting spring housing market! On another note, we would like to congratulate our former processor Renee and her husband Hunter on the birth of their son, Joden Walker. We are so thrilled to welcome Joden into the RMC family!