Rising #Mortgage Risk With Fewer #Homes for Sale

Posted on August 04, 2017 in Economy, Government, Housing, Mortgages, Uncategorized | Add Your Voice
Rising Mortgage Risk 
Rising interest rates for loans and tight inventory of homes for sale have triggered a rise in mortgage risk, according to the Loan Application Defect Index from First American Financial. This is the seventh month in a row that mortgage defect risk has risen.The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications increased 1.2% from May to June. That’s an increase of over 16% from this time last year. Despite this increase, the risk level is still down 17% from its peak in October 2013.

“The dynamics of ‘reach’ when borrowers make a legitimate effort to qualify for the mortgage that is necessary to purchase a home tend to become more worrying as the ‘reach’ becomes more pronounced,” says The Collingwood Group Managing Director Tom Booker. “If wages and home prices continue to diverge, this Loan Application Defect Index will be an interesting measure to watch.”

The highest risk for mortgages are in these markets, according to First American:

“Raleigh, N.C., is currently the riskiest market in the country, with a high level that is growing quickly. In fact, all of the markets in this list are in the South,” says First American Chief Economist Mark Fleming. “Combining the levels of risk and rate of change rankings of loan application defect, fraud and misrepresentation risk reveals that major markets in North Carolina and Florida are high risk and the risk in these markets continues to grow at a strong pace. The market shift toward more purchase mortgages, coupled with rising rates and tight inventory, is generating the consistent upward trend in defect risk.”

Situs RERC Hires Managing Director
The Collingwood Group parent company Situs is pleased to announce that Jamie Molloy has joined Situs RERC as managing director. He will lead the expansion of valuation services to bank, private equity and pension fund clients.

A longtime valuation and appraisal expert, Jamie brings unparalleled experience and market knowledge to our clients. Along with Situs senior management, Jamie will be instrumental in further developing our suite of solutions to address the evolving needs of the industry, while expanding the effective reach of Situs RERC.

Jamie comes to us from Deutsche Bank where he has spent the past 10 years as Global Head of Real Estate Valuation, directing a global team of real property valuation professionals in New York, London, Frankfurt, Mumbai, Hong Kong and Tokyo. Jamie is a member of the Appraisal Institute, a Fellow with the Royal Institute of Chartered Surveyors, a Counselor of Real Estate, a New York State Licensed General Real Estate Appraiser and a member of the Risk Management Association.

Mortgage Applications Tumble
Mortgage applications fell 2.8 percent last week compared with the previous week, according to the Mortgage Bankers Association. Volume was 22 percent lower compared with the same week a year ago.

Rates are currently hovering around their lowest level in five weeks:

  • Interest rates for 30-year fixed-rate mortgages remained unchanged at 4.17 percent.
  • 15-year fixed-rate mortgages remained unchanged at 3.45%.
  • Interest rates for 5/1 ARMs increased to 3.30% from 3.29%.

“It was an up and down time for rates last week in response to mixed economic news, coupled with the Fed’s FOMC statement,” said Joel Kan, MBA’s associate vice president of industry surveys and forecasting. “The statement outlined a mostly healthy outlook, with a slight concern over inflation and the news that balance sheet reduction could begin ‘relatively soon.'”

Mortgage applications to purchase a home, which are far less sensitive to weekly rate moves, fell 2 percent for the week. That is the second straight decline and the lowest level since last March. Purchase applications were 9 percent higher than the same week one year ago.

read more: CNBC

Home Sales Forecast for Summer Cool-down
Ten-X forecasts a cool-down for existing home sales for July when the final numbers are tallied. According to the Ten-X Nowcast, sales for last month will hit a seasonally adjusted annual rate between 5.32 and 5.68 million with a targeted number of 5.50 million. That’s down 0.4% percent from NAR’s reported June sales, but up 2.0 percent from July last year.

“Extraordinarily low levels of both new and existing home inventory appear to finally be catching up with the housing market,” says Ten-X Executive Vice President Rick Sharga. “This is especially a problem in some of the high-demand metro areas like Coastal California and the Pacific Northwest, and there’s virtually nothing available for entry-level buyers, which is why first-time homebuyer numbers continue to lag behind historic norms.”

Last month, the Ten-X Nowcast projected home sales to take a slight step back, aligning with the recent the National Association of Realtors release, which showed a minor downtick in home sales from the month prior. NAR reported that existing home sales in June declined to 5.52 million units, a 1.8 percent decrease from May’s 5.62 million number and 0.8 percent down from a year ago.

Last month’s Ten-X Nowcast also predicted another solid year-over-year gain in existing-home prices, which was confirmed by the NAR report, as the median existing home price for all housing types rose 6.5 percent year-over-year to $263,800 in June. This marks the 64th consecutive month of year-over-year price gains. The July Ten-X Residential Real Estate Nowcast predicts that median existing home prices will continue to make annual strides to between $251,219 and $277,663 with a target price point of $264,441, up 0.2 percent from June and a 8.3 percent gain from last year.

“U.S. home sales continue to zigzag month to month as strong demand clashes with persistently low supply. The resulting price gains are beneficial for existing homeowners, but restrain prospective buyers,” said Ten-X Chief Economist Peter Muoio. “While there are concerns around declining home affordability and its impact on potential buyers, the housing market should remain on solid footing thanks to a firm labor market and rising wages.”

read more: BUILDER Online

Fannie Mae to Give Treasury Another $3 Billion
Fannie Mae reports net income of $3.2 billion from April through June, up from a year earlier as the mortgage giant marked gains on its investments.

The government-controlled company released its second-quarter results Thursday.

Fannie will pay a dividend of $3.1 billion to the U.S. Treasury next month if the company’s federal regulator agrees. That payment would bring the total dividends paid by Fannie to $165.8 billion.

The GSE received $116 billion from taxpayers when the financial crisis struck in September 2008. The government rescued Fannie and smaller sibling Freddie Mac after they suffered huge losses from risky mortgages in the housing market bust. Together the companies received rescue loans totaling about $187 billion. The housing market’s gradual recovery has made Fannie and Freddie profitable again.

Fannie’s second-quarter profit marked an increase from the $2.95 billion it earned in the same period of 2016.

On Tuesday, Freddie reported net income of $1.7 billion for the second quarter, up from $993 million a year earlier. Freddie will pay a dividend of $2 billion to the Treasury next month.

Record-low interest rates have helped spur home purchases and boosted the housing market. Still, the market’s revival has been uneven, and it has lagged behind the rest of the economy. Despite the low borrowing rates that could lure prospective homebuyers, the market has remained hampered by tight mortgage credit, rising home prices and stagnating incomes.

Late Credit-Card Payments Stoke Fears for Banks
Credit-card losses are mounting, a reversal from a six-year trend that could be a warning sign for markets and the broader economy.

The average net charge-off rate for large U.S. card issuers — the percentage of outstanding debt that issuers write off as a loss — increased to 3.29% in the second quarter, its highest level in four years, according to Fitch Ratings. The quarter was also the fifth consecutive period of year-over-year increases in the closely watched rate. All eight large issuers, including J.P. Morgan Chase & Co., Citigroup Inc., Capital One Financial Corp. and Discover Financial Services had increases for the quarter.

The trend, which accelerated in the first half of this year, has started to suppress bank earnings. If consumers’ budgets get more stretched, a pullback in spending could pressure both growth and corporate profits.

While losses are rising, they remain low compared with historical levels and the 10% net charge-off rate they hit in early 2010. Lenders say they aren’t expecting a return to crisis-level losses and the increases are largely a return to normal after a period of abnormal lows.

Still, other bankers have noted the change in direction, a new string of losses in the industry after 24 quarters in which they fell. “The overall environment is deteriorating,” said David Nelms, chief executive at Discover in an interview. It is “not quite as favorable as it was over the past few years.”

read more: Wall St Journal

Housing Bubble Warnings For Four Cities
Four of the nation’s largest cities are now considered overvalued, according to CoreLogic. Home prices in Denver, Houston, Miami and the Washington, D.C., metropolitan area now exceed sustainable levels.

To determine if a market is overvalued, CoreLogic compares current prices to their long-run, sustainable levels, which are supported by local economic fundamentals like disposable income. An overvalued market is one in which home prices are at least 10 percent higher than that level. The rest of the top 10 markets are considered “at value,” but none are undervalued, as prices are higher in all of them compared with a year ago.

“With no end to the escalation in sight, affordability is rapidly deteriorating nationally,” said Frank Martell, president and CEO of CoreLogic. “While low mortgage rates are keeping the market affordable from a monthly payment perspective, affordability will likely become a much bigger challenge in the years ahead until the industry resolves the housing supply challenge.”

read more: CNBC

Executives Are More Worried About Amazon Than Chaos in Washington 
What keeps corporate leaders up at night?

It isn’t the chaos in Washington or rising worker pay. It’s what Amazon.com Inc. is, or could be, doing to their business models, according to a Bloomberg analysis of earnings conference call transcripts.

The expanding online behemoth has morphed from a retail category killer to a much broader enterprise that now competes with everything from high-end grocers to technology developers. It’s safe to say corporate America has taken notice — and is increasingly concerned about the competition.

Looking at the last 90 days of earnings calls and other corporate events such as investor days, a trend emerges. Amazon comes up a lot. It was mentioned a staggering 635 times over that time frame, while President Trump came up just 162 times and wages were discussed 111, the earnings call data show. It’s become even more pronounced over the past 30 days, with Amazon garnering 165 mentions compared with 32 for Trump and 22 for wages.

The trend holds over the past 12 months, which encompasses the period when Trump pulled off his surprise election victory. Yet Amazon was mentioned 1,800 times on earnings calls over that span, compared with 1,000 for Trump and 406 for wages.

A representative for Amazon didn’t immediately respond to an email seeking comment.

Amazon typically comes up in discussions about efforts to expand into new business lines in a shifting retail landscape. For instance, on the McDonald’s Corp. second-quarter earnings call this month, Chief Executive Officer Steve Easterbrook pointed to Amazon’s purchase of the upscale grocery chain Whole Foods Market Inc. as an example of how rapidly the food industry is being transformed.

“It just demonstrates how disruptive the business world is and how quickly it moves,” he said.

Executives are also quick to point out partnerships they have with Amazon. Mark Parker, the CEO of Nike Inc., highlighted the shoe manufacturer’s pilot brand-registry program with the retailer on his June earnings call.

“As we do with all of our partners,” he said, “we’re looking for ways to improve the Nike consumer experience on Amazon by elevating the way the brand is presented and increasing the quality of product storytelling.”

read more: Bloomberg

Hotel Boom Unfettered by $15 Minimum Wage
When SeaTac, Wash., became the first city in the nation to pass a $15-an-hour minimum wage in 2013, Jeff Robinson, the city’s director of community and economic development, said critics warned him that it would scare away businesses.

But the higher minimum wage hasn’t done that at all. The hotel industry is a prime example: Nine hotels are in development, which will increase the available rooms by 25 percent, to 7,000.

SeaTac is home to Seattle-Tacoma International Airport, now the ninth busiest in the nation, and a new light rail line links the airport to Seattle. Nearby are the corporate headquarters of Amazon, Microsoft, Starbucks, Costco and Nordstrom, and Seattle’s unemployment rate has been hovering around 3 percent, according to the Bureau of Labor Statistics.

Michael H. Mahoney, president of the Dallas-based development company Western International, said his company had not built anything in the Seattle area for more than 10 years, but it was drawn to SeaTac because some available property there bordered a lake and the light rail system had just been built. Business travelers can stay near the airport where it is a bit less expensive than in downtown Seattle, he said, “and close to their flight home,” but they still have easy access to downtown for meetings or entertainment.

He said he considered the $15 minimum wage before deciding to go ahead with a 176-room Residence Inn by Marriott that is scheduled to open next spring, but it was not the determining factor. “We are competing for quality people seeking the best jobs, so would likely have been at that threshold anyway,” he said.

“There’s a lot of noise” about higher minimum wages, he said, but he decides whether to enter an area based on an overall favorable economic outlook. If the area is not doing well, “we’re not going in there,” he said, so wages are not generally a factor.

Sylvia A. Allegretto, an economist and co-chairwoman of the Center on Wage and Employment Dynamics at the University of California, Berkeley, said she and her colleagues had studied 30 years of wage and employment data and found that higher minimum wages had not reduced employment.

read more: NY Times

O.J. Simpson’s Kids Juice Up on Real Estate
O.J. Simpson’s children have gone on a real-estate spending spree over the past two years — and the families of murder victims Nicole Brown Simpson and Ron Goldman want to know where they got all the dough.

Sydney Simpson, 31, and her brother Justin, 28, have built a mini-real estate empire in St. Petersburg, Fla., scooping up 13 properties since 2015, according to documents reviewed by The Post.

The homes and apartments are in low-income areas and total about $500,000. All but two appear to have been bought with cash.

Where the kids got the money for the properties could lead to a legal battle between O.J. Simpson and the families of Goldman and Nicole Brown Simpson, who was the former football great’s ex-wife and is the children’s mother.

Sydney and Justin were asleep upstairs on June 12, 1994, when their mother and Goldman, her friend, were slashed to death outside the family’s condo in the Brentwood neighborhood of Los Angeles.

O.J. Simpson was acquitted of the murders a year later but found liable for the pair’s deaths in a civil proceeding in 1997.

Simpson, who will be released from prison in October after doing time for an armed robbery, still owes almost all of the $33.5 million civil judgment against him.

David Cook, a lawyer for Goldman’s father, Fred, said he would seek bank records and depositions to follow the kids’ money trail and see if any of the homes were bought with their dad’s cash, which could make them eligible for a claw-back.

read more: NY Post

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Lou Giserman
Senior Media Consultant
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