Home Equity Continues to Improve

4495CoreLogic reported US homeowners with mortgages saw their equity increase by $227 Billion in Q3 of 2016, up 3.1% annually.  This growth is associated with the improvement of the average loan-to-value ratio.  The average LTV ratio was 55.4%, down from 56% in mid-2016 and 57.3% in 2015.

Home equity for all homeowners (with and without mortgages) grew by $726 Billion, a year-over-year increase of 10.8%.  Additionally, 384,000 borrowers moved out of negative equity.  To date, 93.7% of all mortgaged properties are homes with positive equity, approximately 48 Million homes.

President and CEO of CoreLogic, Anand Nallathambi attributed the equity increase to price appreciation, listing “paydown of principal is the second key component of equity building.  Many homeowners have refinanced into shorter-term loans, such as a 15-year loan, and by doing so, they have significantly fewer mortgage payments and are able to build equity wealth faster.”

On a national average, homeowner equity increased by $13,000 for mortgaged properties.  The Pacific Northwest including California, Oregon, and Washington saw equity increases of about $25,000 to $30,000 while outliers Alaska, Connecticut, and North Dakota declined slightly.

Equity is the amount of the home actually owned, or the subtraction of the loan balance from the value of the home.   Homeowners build equity as the property value increases and the amount of the debt decreases.

Sources: The Balance, CoreLogic, MBA, Mortgage Daily

Rates Up, Pending Home Sales Down..

Weekly Review

The major stock market indexes posted moderate losses for the week and the psychological milestone of 20,000 for the Dow Jones Industrial Average remained elusive.  The indexes recorded the majority of their losses on Wednesday with the S&P 500 Index charting its largest drop since last October.  The selling in stocks was likely due to large institutional investors such as pension funds rebalancing their portfolios and locking in equity gains realized since the election.

Meanwhile, bond prices rose and yields fell following a surprisingly strong and robust $34 billion 5-year Treasury note auction that saw a high yield of 2.057% with a strong bid-to-cover ratio 2.72.  Indirect bidders (primarily foreign central banks) snapped up 71.4% of this supply while direct bidders (bond dealers, hedge funds, pension funds, mutual funds, insurers, banks, and individuals) bought 4.1% of the issue.  Bond prices also improved on news of an unexpected decline in Pending Home Sales.

Wednesday, the National Association of Realtors reported their Pending Home Sales Index fell to a 10-month low during November, falling 2.5% to 107.3.  Analysts had forecast the Index to increase 0.5% for the month.  The Index was also 0.4% lower than in November 2015.  This might be a sign that rising mortgage rates coupled with a shortage of home inventory available for sale could be weighing on the housing market.

phs-november12-28-2016However, home prices continue to remain strong.  According to the latest report from S&P CoreLogic Case-Shiller, home prices reached a new high, rising 5.6% in October.  The S&P/Case-Shiller U.S. National Home Price Index was also 5.6% higher in October from the prior year.  The Case-Shiller 20-City Composite Home Price Index increased 5.1% in October from the same time a year ago.

For the week, the FNMA 3.5% coupon bond gained 89.1 basis points to end at $102.42 while the 10-year Treasury yield fell 9.66 basis points to end at 2.446%.  Stocks ended the week lower with the Dow Jones Industrial Average falling 171.21 points to end at 19,762.60.  The NASDAQ Composite Index dropped 79.57 points to close at 5,383.12, and the S&P 500 Index lost 24.96 points to close at 2,238.83.

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average (DJIA) has gained 11.83%, the NASDAQ Composite Index has added 6.98%, and the S&P 500 Index has advanced 8.70%.  When including dividends, the DJIA gained 13.4%, the NASDAQ Composite gained 7.5% and the S&P 500 gained 9.5% for the year.

This past week, the national average 30-year mortgage rate decreased to 4.21% from 4.33% while the 15-year mortgage rate decreased to 3.40% from 3.51%.  The 5/1 ARM mortgage rate fell to 3.05% from 3.15%.  FHA 30-year rates decreased to 3.75% from 3.85% and Jumbo 30-year rates decreased to 4.23% from 4.35%.

 Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

rate-forecast-chartBond prices shot higher and broke above two levels of resistance during the week.  The FNMA 30-year 3.5% coupon bond ($102.42, +89.1 basis points) traded within a wider 120 basis point range between a weekly intraday low of $101.30 on Tuesday and a weekly intraday high of $102.50 on Friday before closing the week at $102.42.  Trading volumes will get back toward normal levels during this coming week, and coupled with major economic news headlined by December’s Employment Situation Summary, we could see an increase in market volatility.  The chart is showing the bond is not yet “overbought” while in a favorable upward trend, so we could see a continuation higher toward the next resistance level at the 61.8% Fibonacci retracement level at $102.79.  As a result, we should see slightly lower mortgage rates in the coming week.

One Time Close…It’s BACK!

There hasn’t been a decent retail construction loan product since the collapse in mortgage banking back in 2008.  Consumers have been left to their own devices and local community banks to fund any home renovations or ground up construction projects.

In the North Bay, we haven’t seen substantial new construction in a decade, although there are several new projects that are online at this time.  Finally, the mortgage industry is responding with several new loan products that could help homeowners and investors to fund desperately needed new homes and rehabilitate dilapidated housing statewide.

Our One Time Close (OTC) Construction to Permanent loan product has a lot to offer potential home  owners.  At its core, it is based on either an FHA or VA loan as the permanent financing after the construction phase is complete.  Low to NO down payment and liberal credit qualifying means many families could qualify.

Here is a quick video on the product (90sec) and a flyer below:

Here is a PDF of the flyer: OTC_Flyer_NB

Remember, this product allows consumers to buy the lot, improve it, build and end up with a great fixed rate loan at the end with little to no down payment.

TRID…Closing Times on the Rise

2016-01-22_22-48-09

After it jumped up by three full days in November the average time to close a first mortgage loan stabilized in December at 49 days. The November increase had been attributed to unfamiliarity with the new Truth in Lending Disclosure Rule (TRID) which went into effect for loans for which applications were received after October 3.

Ellie Mae’s Origination Insight Report showed that purchase mortgage closings did take one day longer, 50 days, to close in December but that was offset by a drop in closing times for refinances from 49 to 47 days.  The average time to close FHA and conventional loans remained largely unchanged at 49 days, while for VA loans it increased from 50 to 52 days.

Jonathan Corr, president and CEO of Ellie Mae said that the company’s customers are certainly impacted by TRID. He commented, “While the time to close loans remained consistent from November, the 49-day cycle is still a week longer than the time to close at this same time last year.”

Now the mortgage industry is sounding a bigger alarm, claiming some investors are refusing to buy certain loans once they close because of potential compliance failures.  The bottleneck is happening when lenders immediately try to sell loans in the secondary market. The fear is that some lenders could get stuck with loans if investors refuse to buy them, causing potential liquidity problems, especially for independent mortgage banks.

The first inkling of trouble came when Moody’s Investors Service warned in early December that several third-party review firms found more than 90% of the first pipeline of loans that closed after Oct. 3, when the rules took effect, had compliance violations. The findings were based on reviews of roughly 300 loans from a dozen lenders, said Yehudah Forster, a Moody’s vice president and senior credit officer.

Mark Mason, the chairman and chief executive of $5 billion-asset HomeStreet Bank in Seattle, said some nonagency jumbo loans, custom home construction loans, and down-payment-assistance loans offered through state housing finance agencies are not being purchased by investors. However, it is unclear how widespread the issue is.

It is crucial that the lending team you’re working with be well versed in navigating TRID and work as a team, helping to guide all parties to be compliant and close as quickly as possible.  Make sure to discuss this with your existing lending partners and find out what their closing turn times are on a weekly basis as spikes in volume can alter performance quickly.