“It ain’t rocket surgery.” Trulia has a good piece out on the advantages of buying versus renting. Buying a home is 37% cheaper than renting nationally. Naturally, the advantage differs from market to market, but even the worst markets for buying are still 17% cheaper. This assumes the buyer puts down 20% and stays in the house for 7 years. The advantage was as high as 41% in 2012, and got as low as 34% in 2014. Of course, this is a moving target as mortgage rates and house prices change. Where are the tipping points to flip the relationship? For home prices, it is a median house price of $468k. For mortgage rates, it is 9.1%. We have a way to go - more below.
Successful loan officers seem to be focused on many things: guidelines, the local real estate market, what competitors are doing, the overall economy, and general trends in lending. For example, they know that homeownership is at 50 year low per our Census Bureau. The highest it has even been, since the government began tracking it, is about 69%; it is currently around 63-64%. That being said, experienced LOs know that not everyone deserves to buy a home, despite what some members of the government believe. When the homeownership rate hit 69% back in 2007, the government was pushing homeownership in the years prior to 2007. Credit scores and ratios (including stated income and 100% LTV loans) were not as strict as they are now which allowed more borrowers to qualify, but look where that got us. As veteran LO Guy Schwartz puts it, "It is hard to increase homeownership percentages without loosening up credit guidelines."
The feedback from a diverse group of bank and non-bank mortgage lenders continues to highlight strong trends across the various credit-related metrics tracked by Zelman & Associates.Specifically, in August, lenders reported stable demand strength for purchase mortgages, ongoing momentum in the most recent refinance wave and favorable trends in credit quality and availability. While intense regulatory scrutiny remains a governing force on the market, Zelman believes the existing credit box is reasonable for the clear majority of potential buyers and continues to expand on the margin as lenders balance volume growth with credit risk. There is still, however, a disconnect between consumers' perceptions of mortgage requirements versus reality, which has likely mitigated potential demand, although that dynamic is gradually evolving with the cycle.
Driven by jumbo underwriting, credit eased somewhat in October, according to the MBA's Mortgage Credit Availability Index. Since the depths of the real estate bust, mortgage credit has increased tremendously, however compared to the bubble days it is extremely tight.
Looking through the age groups and immigration patterns, there is good news indeed. For example, the U.S. four-year high school graduation rate hit 83.2 percent in the 2014-2015 school year, up from 79 percent in the 2010-11 year. And Millennials, well, at an age range of 19-35 currently they're still young. They make up the largest pool of potential new households, and will of course eventually settle down, and then, after decades of saving up a down payment, they will buy a place - which will help bring the percentage of home owners up.
As it stands now, research by the Census Bureau finds the median 25 to 29-year old spends 27% of their income on housing versus 21% for the median 45 to 64-year old. So yes, rent is taking its toll. The decision to rent versus buy a home has been an ongoing debate throughout all age groups but now the millennial demographic especially.
Millennials and new immigrants who purchase a home have the opportunity to begin a long-term investment and gain equity over time, instead of renting and putting money in a landlord's pocket. This equity in turn provides future flexibility to take out a home equity line of credit (HELOC) to leverage for life expenses such as home repairs and medical expenses. Of course there are tax breaks, used by the government to varying degrees to encourage home ownership. Deducting the annual mortgage interest on tax returns helps. And if the pricing works, buying a starter home now provides millennials an opportunity to turn it into a rental property once they purchase a long-term home down the road, to provide a source of added income.
Per TD Bank's First-Time Home Buyer Pulse, almost a quarter of millennials (24%) are actively looking to buy their first home, and 38% will be looking in the next one to two years. Each buyer's unique financial situation plays a significant role in which kind of home they purchase. With the high rate of college debt, millennials are focused on spending their money wisely. If they are looking to buy it's important to consider factors such as, how much they have saved up and the state of the real estate market in their area.
Vendor news? Yes, there is.
Altisource announced the rebranding of Altisource Origination Services (AOS) to Trelix. The mortgage industry is facing higher overall production costs and manufacturing risk due to increased regulatory scrutiny and shortages of critical staffing. The Trelix experience and proprietary technology can help mortgage market participants of all sizes increase efficiency and improve profitability. "The rebranding to Trelix is another important step in the evolution of our story as we continue to invest in technology to address the evolving and increasingly more complex needs of mortgage lenders and investors," said Jon W. Gerretsen, president of the Trelix business. "We are dedicated to building successful long-term relationships with our clients and will continue to deliver best-in-class solutions and services."
Equifax and FormFree have creates and alliance currently exploring options for FormFree to provide asset verification services concurrently with Equifax's provision of employment and income verification services. Equifax and FormFree are discussing the development of integration points for lenders to access the asset, employment and income information. It is expected that Equifax will enable lenders to easily order this information through a web-based platform. The provision of asset, employment and income information may help eliminate the need for many borrowers to collect, copy and submit paper statements. Additional details regarding the alliance between FormFree and Equifax will be made available in the future.
Continuing to bring to market leading mortgage solutions, InSellerate recently announced its partnership and new product integration with Vantage Productions at the annual MBA show. Consumer direct lenders will be able leverage insellerate's robust sales and loan management platform combined with Vantage production's presentation tools and marketing collateral. To see a demo of InSellerate's product and to learn more about the partnership go to Www.insellerate. com.
Lender Finance launched its mortgage analytics, product pricing & eligibility (PPE) solutions complete with full mobile functionality and advanced business intelligence a few weeks ago at the MBA's Annual Convention. "Architected for innovation and versatility as a big data, native mobile solution, the Lender Price PPE platform allows wholesale and correspondent lenders, banks, and credit unions to manage products and pricing for all mortgage types, including conforming, non-conforming, non-QM, and specialty loans, while providing powerful performance features."
Turning our gaze to the capital markets, since those determine the rates borrower's pay, I've recently noticed some of the mortgage traders believing that mortgage spreads are still on the tight side, and therefore aren't advising clients to buy them. The Fed, however, continues to buy roughly $2 billion a day of agency MBS production, using money from loans that paid off early. What if rates go up and fewer loans pay off early? Good question.
These same traders note that Fannie Mae's "Day 1 Certainty" program will soon provide partial rep & warrant relief when an originator uses DU and Fannie's process. Experts view this as another step in the gradual expansion of the credit box. Speaking of which, economists at the Fed released a study that argues the 2015 FHA MIP cut expanded overall lending to low credit borrowers.
On Monday, the bond market sold off slightly, and thus rates moved slightly higher, as risk aversion came to a sudden stop after weekend news that the FBI would not recommend criminal charges against Hillary Clinton. The 10-year worsened .375 in price, ending the day at 1.83%, and agency MBS prices sold off about .125. The U.S. stock market, which had become very oversold last week, garnered the headlines and rallied on the news. The resurgence in risk appetites killed demand for safe-haven assets and Treasuries, gold, and the Japanese yen all took sharp losses.
Today is election day, as if you didn't know, and the press is limited in announcing results so we'll have plenty of time-filling jawboning from reporters until late tonight. This morning we've had the NFIB Small Business Optimism Index for October (it came in as expected); later are more stats of little market-moving consequence: the Redbook Weekly Same-Store Sales Index and the Job Openings and Labor Turnover Survey for September (JOLTS). We also have the first leg of this week's Treasury refunding auctions with $24 billion of 3-year notes to be sold at 1PM ET. In the early going rates aren't doing much with the 10-year at 1.82% and agency MBS prices unchanged.
Jobs and Announcements
In retail job news, "Be a part of something bigger and better! Finance of America Mortgage is continuing to grow nationally and is looking for branch managers and loan originators to help grow its presence in the South Central & Western Rocky Mountain Regions (Texas, Oklahoma, Arkansas, Louisiana, & Utah). With its cutting-edge technology, powerful backing of one of the largest private equity firms, and the culture of a small company, Finance of America Mortgage has the tools to help you be even more successful. To learn more about one of the fastest growing companies contact email@example.com.
In a different area of the nation, Centennial Lending Group LLC, headquartered in Maple Glen PA, has experienced substantial development over the past year, expanding into 4 additional states in the Mid-Atlantic, Southeast, and Midwest. Given this expansion, President and CEO Susan Meitner is seeking a dynamic sales executive that can lead their team into 2017 and continue the CLG expansion throughout their 12-state footprint. The ideal candidate will have 15+ years in the mortgage industry, driven and energetic, able to work in a fast-paced environment, organized, sales focused, technologically savvy, a motivator and team player. Founded in 2010, CLG is a privately held, full-service residential mortgage lender. Centennial Lending Group has been honored by Inc. 500 as one of the Fastest Growing Privately Held Companies, Philadelphia Magazine's Five Star Professional Awards, and the Mortgage Professional America Magazine's Hot 100 Award. For additional information, please contact CLG at firstname.lastname@example.org.
For events tailored to loan officers, "Don't miss the opportunity to send your LOs to Lenders One's exclusive workshop on December 8-9 in San Diego. Set loan officers up for success with participatory sessions, sustainable growth strategies and business plan building focused on increasing production in 2017. Jason Abell (author, personal coach and mortgage banking expert) will share his approach to success and pattern for repeatable victories to propel your organization to the next level. He, along with Steve Scanlon will provide you the tools and instruction which will have you walking away with a business plan for the new year along with best practices shared from several top 200 originators. Click here to secure a spot! Interested in learning more? ContactSusan Malpocker. Interested in membership with Lenders One? Contact Michael Kuentz."
And, "Did you know 90% of business plans fail? Don't let this happen to you! You know what you need to do to achieve and sustain a high-performance business. But, why don't you do what needs to be done consistently? Join master coach and Vantage Production faculty member Erik Janeczko as he shares the secrets to success to make 2017 your best year yet in the webinar, Failure Is Not an Option: Create a winning business plan for 2017 - hosted by Vantage Production president and CEO, Sue Woodard on Thursday, November 10th from 1-2PM ET. Click here to register."