Nurul Hana Adi Maimun

The average U.S. home may be roughly 5,000 miles from central London, but the recent Brexit vote is having a dramatic effect on mortgages from Maine to California and the banks and investors that back them. The average contract interest rate on the popular 30-year fixed home loan is approaching its record low, and that has created yet another refinance boom. Even though interest rates have been low for several years, millions of homeowners have recently gained considerable home equity, thanks to fast-rising home prices.

They are now not only eligible for refinances but may want to tap some of that new-found equity. The mortgage market could have a refinance boom rivaling the one seen from 2008 to 2014, when about 25 million borrowers refinanced their mortgages, according to a new report from the Urban Institute authored by Jim Parrott and Alanna McCargo. That will mean short-term pain for some of the nation’s largest mortgage servicers as well as investors in mortgage-backed securities, or MBS. The surge in refinancing will increase prepay speeds for the securities backed by these mortgages, shortening the term of the investment and reducing the return. This will drive losses for investors with unhedged MBS positions. Similarly, servicers will see the revenue streams from their mortgage servicing rights, or MSRs, dry up as borrowers refinance out of the loans they are servicing. Those servicers that have not hedged these revenue streams and are unable to mitigate their losses with new MSRs will also see significant losses.

“It’s the insurance companies and other entities that own the securities that really get hurt,” noted Paul Miller, an analyst at FBR Capital Markets. “The banks will profit from it. Nonbanks are a bigger part of the originations today, but they still end up going through the big banks.”
The one area in which lenders lose is in servicing the mortgages. When people refinance, the servicers often change.

The yield on the 10-year Treasury, which mortgage rates loosely follow, will have to stay low for a while, however, before mortgage rates move significantly lower, as there are more costs involved today for lenders than there were even four years ago. That is thanks to new federal regulations on lending.
“What guys are probably doing in the mortgage world is not really ramping up and seeing where the volatility shakes out. If they stay at these levels, you will see rates drop to the 3 ¼ percent range which will signal a material change,” added Miller. For investors in mortgage-backed bonds, refinances, or so-called prepayments, mean they get their money back, but that’s not necessarily a good thing. “One of the challenges posed by prepayments is typically borrowers prepay when interest rates drop, then investors end up with a whole lot of cash in a lower-interest rate environment,” said Parrott, who also points out a tricky problem involving accounting rules at Freddie Mac.

The government-sponsored enterprise guards against the risk of rising interest rates by hedging with positions that do well when rates rise and poorly when they fall.

“The problem is the way the accounting laws work, they only report the hedges, not the positions they’re hedging against. So if you have a lot of movement, the way the rules work, it shows all of this gain or loss,” explained Parrott. “The reason why we care is if there is enough movement, then Freddie could have to report a loss, and whether they have to borrow money from Treasury in a given quarter is driven by what they have to report from that quarter.”

The drop in Treasury yields in the first quarter of this year caused Freddie mac to report accounting losses of $1.4 billion related to its hedging of interest rate risk, leading to overall losses of $354 million. Should yields now fall even further, the losses could be greater. The losses would be reported just before the presidential election.

Source: realestate_iq

As 2016 ticks along, each passing day brings us closer to November which will ring in the United States’ 58th Presidential Election Day on the 8th. Several things are often affected as the election draws near, such as commerce and the economy, but what about the real estate market? As you may have guessed, the answer is a resounding yes! Let’s dig a little deeper to find out how and why. First, we look at the evidence. In a paper published in 2014 in the British Journal of Political Science, economist Brandice Canes-Wrone, along with co-author Jee-Kwang Park, observed very distinct trends in home sales during gubernatorial election years versus non-election years. They studied data from 1999 to 2006 in 35 states during 73 of those elections. They found that home sales declined two-tenths to three-tenths of a percent. Another study done in 2012 by the website Movoto also shows the real estate market being affected and this time by presidential elections. Movoto used data from the California Realtors Association and noticed that home prices increased 1.5% less than the years preceding and following the elections.

Both of these studies had the same conclusion: the real estate market may have been directly affected by the uncertainty of the election. In other words, consumers don’t feel comfortable enough with the state of the economy to make such a large purchase. When the economy is in a weakened state, such as the one it is in now, it is a direct reflection of consumer confidence. Consumer confidence affects consumer spending. The unknown of a presidential election year puts stress on the average joe or jane home buyer, and they often hold out on such large expenditures until the economy and the unknowns, including who may be running the nation, are settled. Adding to this consumer uncertainty is how close a race is, such as what we are seeing so far this year.

Another question for folks out there looking to buy is about mortgage interest rates. Does an election year affect those too? Brad Yzerman, a loan officer and creator of the site HomeLoanArtist.com, states that “there is no historical evidence that supports mortgage rate consistently go either up or down in a presidential election year.” He goes on to say that some brokers and loan officers may use the fear of uncertainty to scare people into refinancing or buying, so be on guard for such fear tactics.

What does this all mean for you? Should you sell? Should you buy? The answer is: it depends. Truly, there is uncertainty involved as the election draws closer. Much of our wants for moving or selling could be held off until after the market settles again once the new president is in office. Even experts in the mortgage and real estate fields forecast various opinions. Rentals are on the rise, so perhaps that may be a good direction to go in before buying. The economy and real estate market will always be in flux, so get advice from a trusted real estate expert who can take all of the details of your specific situation into account and help you make an informed, rational decision.

Source: realestate_iq

When mortgage mania was at its peak in 2005, millions of homeowners tapped the equity in their homes through home equity lines of credit.

It’s now time to pay the piper.

HELOCs come with 10-year grace periods, so 2015 marked 10 years after the frothiest borrowings. In March, delinquencies were up 87% compared to a year ago among 2005 second lien HELOCs—those that stand behind a mortgage on the property—data provider Black Knight said Monday.

HELOCs taken out in 2005, 2006, and 2007 make up 52% of all active lines of credit, suggesting delinquencies could remain elevated for some time, Black Knight said. There are about 850,000 2005 home equity lines, and 1.25 million each for 2006 and 2007, totaling about $192 billion in all. The silver lining is that more borrowers with 2006 credit lines have prepaid their HELOCs, possibly thanks to ultra-low interest rates in recent years. A similar pattern may continue with the 2007 vintage, Black Knight suggested.

The jump in delinquencies is a reminder of how pervasive the housing bubble was, and how its effects linger in unexpected ways.

In some ways, the housing market has recovered: sales of new and previously-owned homes rebounded to 6 million in April, the first time above that benchmark since the downturn. In some metro areas, prices have topped earlier highs.

But there are still signs of a housing hangover. Nationally, prices remain below the 2006 high by double digits, housing starts haven’t picked up enough to satisfy demand, and nearly 7 million homeowners are still underwater.

Source: realestate_iq

“When real estate agents across the country gather to complain about the things making their lives difficult, one of the top gripes in 2016 has to be “inventory.” Where is the supply to meet buyer demand?

This month, the U.S. Census Bureau reported that new private residential construction spending in May was estimated at a seasonally adjusted annual rate of $451.9 billion.

This is very close to the revised April 2016 estimate of $451.7 billion, and above the May 2015 estimate of $359.5 billion, showing signs of recent stagnation despite an overall upward trend year-over-year.

Earlier this year, Inman columnist Lou Barnes noted that it takes awhile to “get the engine going” on new housing — “labor, land and materials” don’t just magically appear. However, we’re now seven years out from the recession’s end, and inventory growth remains stalled. Spending on new single-family housing specifically was estimated at 239.2 billion in May, down 1.3 percent from 242.3 billion the previous month. However, this is up 6 percent from single-family spending a year prior (225.0 billion). The Census Bureau’s construction spending estimates are based on the “Value of Construction Put In Place Survey,” which provides monthly estimates of the total dollar value of construction work done in the U.S. The survey includes construction done each month on new structures and improvements to existing structures for both the private and public sectors; these numbers are private residential construction estimates.

The estimates include the cost of:

Labor
Materials
Architectural work
Engineering work
Overhead costs
Interest paid during construction
Taxes paid during construction
Contractors’ profits

According to the Census Bureau, “data collection and estimation activities begin on the first day after the reference month and continue for about three weeks. Reported data and estimates are for activity taking place during the previous calendar month.””

Source: realestate_iq