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Home Lending In Flux

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 3rd, 2016

The opportunity for homebuyers with little or no credit to qualify for a mortgage will widen considerably later this month, when housing finance giant Fannie Mae will push the "start" button on an automated underwriting program that doesn't require credit scores. This move will make it easier for millions of so-called "thin file" people to qualify for a home loan.

But just a few days later, the Federal Housing Administration (FHA) will begin counting payments on student loans as part of a borrower's debt load -- effectively knocking many buyers out of the running for government financing.

Until now, borrowers with little credit history found it difficult, if not impossible, to obtain a mortgage from a local lender that sells its loans to Fannie Mae on the secondary market. But starting June 25, such borrowers will be eligible if they can provide a verification of rent for the previous 12 months, plus a year's worth of on-time payments to a utility or a local gym.

During the initial phase-in period for its new "trended data" initiative, Fannie Mae will be looking at two key factors: 1. Do mortgage applicants pay off their entire credit card debt each month, or do they carry a balance? and 2. Do they exceed their available credit limits?

Meanwhile, starting June 30, if you are carrying debt from student loans, it will become more difficult to qualify for low down-payment financing insured by the FHA.

Seven out of every 10 college graduates these days borrowed money to pay for their higher education. According to one report, the typical grad with a bachelor of arts degree leaves school with a debt of $30,000, usually paying $350 a month. Those who go on to grad school have an average of $50,000 in student debt.

All is not lost, though. Miami-based Burkey Capital says that it intends to roll out a new loan program that will allow grads to "basically refinance (their) student loans into a mortgage," says CEO John Burkey.

So if you wanted to borrow $500,000 to buy a house and had student loans totaling $50,000, you'd need a down payment of roughly $50,000, according to Burkey. But you'd end up with basically a 100 percent loan-to-value mortgage of $500,000 -- at a lower rate than what you were likely paying on your school loans.

As you can tell from the example above, the company intends to initially target "top tier" borrowers with strong work and academic profiles in select states. But a nationwide rollout is planned by year's end. The financial services company intends to originate its "BurkeyLoans" and hold them in its investment funds.

If student loans aren't holding back millions of millennials from the housing market, then fear might be -- the fear of losing their shirts by buying a house and then watching its value plummet. After all, that's what happened to many of their parents during the housing recession, and some are still underwater, meaning they owe more than their houses are worth on today's market.

Enter a new insurance product that protects a portion of a borrower's down payment should they have to sell at a loss.

Currently offered by only one lender, Amalgamated Bank of New York, Plus by ValueInsured covers up to 20 percent of a home's purchase price or the actual equity lost, whichever is lower. The insurance kicks in if a borrower has to sell the house in two to seven years after closing and cannot recoup his down payment because of a "market-driven" decline in prices.

At the same time, some of the biggest names in finance -- Fortress for one, KKR for another -- are backing an effort by Overture Technologies to bring private capital back into the mortgage market and expand financing opportunities for folks who cannot qualify for FHA mortgages or loans that will be sold to Fannie Mae or Freddie Mac. Currently, the FHA and the two government-sponsored secondary market companies dominate the market. Private investors have all but vacated housing finance because of the housing bust and the resulting mortgage market meltdown.

But Kim Thompson, executive vice president at Overture, says there is a big appetite on the part of investors for loans that don't conform to the major players' standards. And Overture's end-to-end distribution platform makes it easier for investors to identify worthy borrowers and price loans based on their potential risk.

Thompson says investors specifically have an eye on the 5 million or so people who lost their homes through foreclosure during the recession, but would like to become owners once again. Under Fannie and Freddie's rules, these so-called "boomerang buyers" have to wait up to seven years to qualify, among other requirements.

Finally, for people buying rental houses as an investment, AssetAvenue is now financing single-family homes and two- to four-unit properties for up to 30 years. Previously, five to seven years was the limit.

Because the loans are considered to be commercial mortgages, they will be underwritten based mostly on the borrower's debt-service coverage ratio than on the more traditional debt-to-income ratio. Another key feature: The company will lend as little as $75,000.

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Adult Kids Are a Drag

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 27th, 2016

Some interesting research has come across this desk lately.

One recent study found that perhaps half of all parents are paying bills for at least one adult child (over age 24). Other recent research found that folks don't know as much about housing finance as they think they do, that people aren't switching houses as much as they used to, and that renters tend to owe money to creditors.

Let's dive into some of these revelations.

According to a survey by American Consumer Credit Counseling, a national nonprofit that helps consumers with budgeting, financial education and debt management, 41 percent of those polled are providing support for one adult child. Ten percent are supporting two.

The most common type of support was in the form of housing. Either Mom and Dad were providing housing in their own homes, or they were paying for their kids' places. Second on the list was helping adult children with their household bills.

That may be one reason millennials aren't leaving the nest in droves. After all, why turn your back on a good thing? But it's also a factor in why empty nesters aren't moving. Perhaps they can't afford to move if they are still supporting an adult child or two. Or maybe they just don't want to disturb the household situation.

Another reason people aren't buying: the fear of rejection.

According to research from Wells Fargo, nearly two-thirds of the respondents believe -- incorrectly -- that they need a "very good" credit score to qualify. Many lenders are clearing would-be borrowers with less than pristine credit. Otherwise, few houses would change hands.

People are also mistaken in thinking only folks with high incomes can buy a house these days, which three in 10 Wells Fargo survey respondents believe, or that it takes at least 20 percent down, a belief held by 44 percent of respondents.

According to the Federal Housing Finance Agency, the typical down payment across all segments of the market, not just for people starting out, was 21 percent of the purchase price. But 22 percent of all buyers put down less than 10 percent.

The above findings dovetail nicely into a report from the Census Bureau that shows migration rates -- that is, the share of the population that move within the U.S. -- is half of what it used to be. Between 1984 and 1985, about 20 percent of the population changed places. But in the 2014-15 period, it was 11 percent.

Even more striking is the drop-off in movement among young people age 24-35, who are considered the most mobile age group. Typically, they have completed their education and secured a job; they're forming their own households and eventually marry and have kids.

Between 1999 and 2000, 35 percent of young adults age 20-24 moved elsewhere, as did 27 percent of those age 25-34. But in the 2014-15 period, their migration rates were just 23 percent and 20 percent, respectively.

One reason, perhaps: Renters who have never had a mortgage tend to have lower credit scores and more debt issues that other groups, according to findings from the Urban Institute, a nonpartisan think tank.

Renters who haven't had a mortgage in the past 16 years are less likely to have credit card debt, but they are more likely to have debt in collections than any other group -- including homeowners with a mortgage, or even renters who have had a home loan in the recent past.

Renters also have the lowest credit scores, which is a worry given the size of the group: some 96 million strong, or nearly 40 percent of all adults in 2015.

Finally, there's this silly bit of research from Zillow that shows homes close to a Trader Joe's tend to appreciate a tad faster than those near a Whole Foods: 148 percent between 1997 and 2014 for T.J.'s vs. 140 percent for Whole Foods. Over the same time frame, the median home grew in value by just 71 percent.

Earlier research from Zillow found that appreciation rates were greater for places near a Starbucks than they were for houses near archrival Dunkin' Donuts.

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Crime Stats Not Easy to Find

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 20th, 2016

Murders don't occur solely in "other people's" neighborhoods. Or even "bad" neighborhoods. They happen everywhere.

Last year, in the nice community where I have a winter home, a doctor was bludgeoned to death by two men allegedly hired by her husband.

Every place has a high-profile homicide every once in a while.

According to the Centers for Disease Control and Prevention (CDC), every state experienced homicides in 2014 -- some far more than others. Washington, D.C.'s rate is the highest in the land: 13.72 killings per 100,000 people, with 97 people having been killed in the nation's capital in 2014. California had the highest number of homicides, at 1,813, yet its rate was lower, at 4.63 per 100,000 people.

Louisiana had the next-highest rate at 11.67, followed by Mississippi at 11.41 percent. On the other end of the spectrum, New Hampshire's rate was 1.28 and Massachusetts' was 1.61. Another way to look at it: You are almost 10 times as likely to be a homicide victim in D.C. as you are in New Hampshire.

Statistics like this are interesting, but they are not terribly useful for homebuyers worried about crime, because they don't include neighborhood-level -- or even county-level -- data. And many folks want to know what bad things are happening in the communities they are considering.

In a recent survey by BDX, an online marketing resource for builders (for which I write occasionally), people said the No. 1 thing missing in their real estate web searches are crime figures.

"For me, I want the crime statistics in the area," said a woman named Stacy. "I want to know home burglary information. I know the area where I live now just doesn't feel safe to me, so it's important for my next home to be in a better neighborhood then I am living in now. I want to do more research and not just base (my decision) on price and amenities."

There's good reason for Stacy's interest. Besides the possibility of becoming a victim, property values can plummet when a murder takes place. According to a recent study by Finder.com, a personal finance comparison site, the national housing market loses some $2.3 billion a year in value because of homicides.

"Not only are people creeped out by the thought that someone has been killed," says Finder's Fred Schebesta, "a murder creates a perception that the area is generally less safe and has a high crime rate."

Again, though, Finder's stats are not particularly useful because the numbers aren't local enough. So the question is, how do would-be buyers find what they need to know about crime to make an informed decision?

Fortunately, there are sources. You just have to do some digging.

Start with RealtyTrac's Registered Criminal Offender Risk Index. The index is based on the number of registered criminal offenders -- sex offenders, child predators, kidnappers and violent offenders -- as a percentage of total population in 10,358 ZIP codes. A ZIP code's ratio is then put into one of five categories, ranging from Very High to Very Low.

RealtyTrac found that average home values and home equities were lower in areas with a higher criminal offender index.

"This new index provides concrete evidence that registered criminal offenders pose not only a potential safety risk for homeowners and their families, but also a potential financial risk," said the data company's Daren Blomquist.

The index found that Greenville, South Carolina, had the highest offender index: 73 percent of its homes are located in ZIP codes in the Very High criminal offender category.

Data for the index comes from each state's online criminal offender registry. You can access the registry for your jurisdiction at your state's website.

Unfortunately, most states list only sex offenders. Just a few go beyond that. Montana, for example, also lists violent offenders, while Arkansas and Washington list child kidnappers.

Drilling down -- and for a fee -- you can get a Home Disclosure Report from RealtyTrac (homedisclosure.com), which will not only give you crime stats for a home, but also list local hazards, the property's history, disaster risks and school information. Besides putting your mind at ease -- or setting your antennae to wiggling -- you can use this information as a negotiating tool.

Another source -- also for a fee -- is Homefacts.com, which offers up data on everything RealtyTrac does and more, including where drug labs have been found, the politics of the community you are considering, air quality and the location of such key amenities as banks, hospitals, libraries and fire stations.

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