appreciation

Apache is functioning normally

Apache is functioning normally

Just when you thought things were cooling off, home prices surprised us with yet another killer year.

Tomorrow, Zillow will release the November edition of their Real Estate Market Reports, which will show that home prices increased 6.5% in November from a year earlier, the best year-over-year gain since 2006.

Yes, you heard that right. It might be a seasonal blip, but still, best 12 months since 2006…that’s impressive.

I Was Wrong

I’ll be the first one to admit I was wrong about sustained, stellar home price appreciation. I actually thought things were overheating a couple years ago, yet home prices continued to defy expectations.

I suppose we can thank low mortgage rates and scant inventory for that. The good news is I’ve learned something from all of this.

Whenever you think things are about to top out, they’ve probably got a lot more time to keep going higher. This is probably even more true when you watch things really closely.

The same thing happened in the stock market. It looked frothy a couple years ago, but now we’re on the cusp of Dow 20,000. And probably Dow 21,000 if history is any indication.

Not long after, it might be time to worry, or least get slightly less bullish.

The takeaway is that market tops take a long time to reach, just like market bottoms, and you’ll doubt yourself along the way.

I’ve been hearing chatter lately about how we probably have another good year or so, maybe less, depending on who you ask, in both real estate and the stock market.

The sentiment seems to be that we can squeeze a little more out of this rally, but it’s clearly coming to an end. Everyone seems to agree on that, at least in private.

Does that mean the bottom is going to fall out once we all realize we’ve gotten ahead of ourselves? That part I’m not sure of, though history does tend to surprise us over and over again with the same exact outcome (think about it).

We’ll Never See Another Crisis Like We Did

The chart above (I annotated it) shows the Case-Shiller Home Price Index (red) versus the S&P 500 (blue) since 1987.

I discuss this stuff with my wife sometimes, who always tells me I overthink everything. She’s probably 100% right. But what struck me recently was her telling me something like, “Things will never be as bad as they were a few years ago.”

When I heard her say that I thought to myself, “famous last words.” The second you hear that kind of stuff, it conjures up memories of the dot-com bust or simply the most recent housing crisis, and fears of impending doom.

Back in early 1999, the Dow hit 10,000 for the first time…and it wasn’t long before it hit 11,000. In fact, it was less than two months later that it climbed above that next key threshold.

Interestingly, it wasn’t until 2006 that the Dow surpassed 12,000 for the first time. Does that mean the Dow is going to hit 20,000 soon, then 21,000 shortly after, then tank? Or at least stall for five years? Maybe, who knows?

There’s certainly a lot of uncertainty in the world at the moment. If you want to talk about geopolitical tension, you’ll have plenty of material to fuel days, if not weeks of conversation.

Should You Buy a House in 2017?

Now let’s talk about real estate. Home prices are no longer on sale. Whether they’re still cheap is perhaps a more complicated question.

Most pundits will tell you that Americans are spending less on housing historically, but that’s mainly because of near-record low mortgage rates.

Still, home prices have increased as mortgage rates have risen, so there’s no clear correlation there, as many might expect.

But there will come a time when wages won’t be able to keep up with home prices, at which point they’ll need to fall, or at a minimum, gains will need to moderate as incomes catch up.

The question is when will that actually happen? When the dot-com bubble burst around the turn of the century, home prices pulled back around 10% in the Bay Area.

Before that somewhat modest decline, home prices had risen about 60% from 1997 to 2000.

In San Francisco, the median home value increased from $670,000 in 2012 (most recent bottom) to $1.12 million as of early 2016, a gain exceeding 67%.

History is starting to sound pretty familiar, isn’t it?

Of course, home prices in the Bay Area bounced back between 2003 and 2006, before tanking again. Regardless, the trajectory is always up.

The question then is clearly a matter of timing. As I’ve said before, time heals all real estate wounds, but there are better and worse times to buy. There are also those who tell you not to time the stock market, and probably the housing market too.

For me, 2017 doesn’t seem like a particularly good year to buy real estate. There’s just too much uncertainty in the world at the moment, and with home prices at new, fairly pricey all-time highs, I’d rather watch how things play out.

Pull Back More Likely Than Another Crisis?

Fortunately, the mortgages originated over the past few years (and still today) are of the utmost quality. CoreLogic launched a new quarterly report this week featuring its Housing Credit Index (HCI), which claims mortgage credit risk continues to be low.

In fact, it fell in the third quarter of 2016 from a quarter earlier and a year before that. You can thank rising credit scores, falling DTI ratios, and lower LTVs for that.

But it might be set to change direction as mortgage rates begin to rise, finally. Chances are borrowers will begin to assume more risk to deal with the higher rates and home prices in place, perhaps in the form of ARMs and smaller down payments.

Before long, we could be back in a familiar situation, though as my wife said, not as bad as it was before.

If you wait, maybe you’ll see a pullback of 10% or so, it’s just unclear when that’s going to happen, and also where mortgage rates will be at that time. And with rents expensive too, it’s not an ideal situation for anyone to just sit around and wait. But at some point, something’s got to give.

Source: thetruthaboutmortgage.com

Apache is functioning normally

The Federal Open Market Committee on Wednesday raised the federal funds rate for the first time in four years, marking an end to the easy money that gave rise to the hottest mortgage market in U.S. history.

The FOMC, as was predicted, raised the federal funds rate by 25 basis points to 0.25-0.50 percent, the first time the FOMC has changed the federal funds rate in two years, and the first rate hike since March 2018.

The move, designed to slow the pace of inflation, which reached 7.9% for the year that ended in February, is sure to increase the cost of mortgage borrowing. Whether it slows the frenetic pace of a housing market with historically low supply is yet unclear.

“The Fed worked to ensure today’s announcement would not be a surprise, with the rate hike following a series of foretelling decisions, including its acceleration of asset tapering in December through the end of its asset purchase program earlier this month,” Realtor.com‘s chief economist Danielle Hale said in a statement following the announcement.

“The Fed’s language in its public statements has also prepared markets for rate increases by consistently focusing on above-target inflation and progress against labor market goals. This also meant that mortgage rates have largely adjusted for the first hike, and I don’t expect a spike following the latest announcement.”

Beyond the initial 25 bps rate hike, the Fed also said it planned to raise rates six additional times in 2022 and three times in 2023, giving more certainty to investors in the secondary market, which should help ease overall volatility somewhat.

How should the current market impact lenders’ tech adoption?

HousingWire recently sat down with Polly CEO Adam Carmel to discuss how lenders can break old habits and redefine the mortgage process through innovation and modern, advanced technology.

Presented by: Polly

“With the unemployment rate below 4%, inflation nearing 8% and the war in Ukraine likely to put even more upward pressure on prices, this is what the Fed needs to do to bring inflation under control,” said Mike Fratantoni, chief economist of the Mortgage Bankers Association. “The FOMC economic projections indicate slower growth and higher inflation than had been the expectation at their December meeting. Note that they do not expect to be back at 2% inflation until after 2024.”

Big questions remain, however. It’s still not entirely clear how quickly the Fed will unwind its $9 trillion balance sheet. The Federal Reserve said it would “begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting,” but did not get more specific.

“Although we anticipate that shrinking the balance sheet will begin this summer, we will be looking for details regarding the pace of the runoff and whether they would consider active MBS sales at some point to return to an all-Treasury portfolio,” said Fratantoni.

The purchases of Treasuries and MBS, which ended this month and were designed to support the economy during the Covid-19 pandemic, helped the housing and mortgage markets reach never-before-seen heights.

Fueled by a sharp drop in mortgage rates during the pandemic, the U.S. mortgage industry funded $4.1 trillion in new loans in 2020 (64% refis, 36% purchases), and $3.9 trillion in 2021 (57% refis, 43% purchases), according to the MBA.

But refi applications fell to about one-third of rate locks in February, and lenders have switched gears to serve a heavy purchase market. And that market is largely defined by a dearth of inventory.

On Friday, Zillow reported that overall housing inventory dropped to 729,000 home listings in February, a 25% drop year-over-year and a 48% fall since February 2020. It was the fifth consecutive drop in inventory.

Though the rise of mortgage rates – the MBA anticipates rates to hover around 4.5% for the next year – will force some would-be buyers out of the purchase market, other factors appear more important.

“Mortgage rates have already been increasing for many reasons — improving economy, higher inflation expectations and Fed tightening,” said Odeta Kushi, deputy chief economist of First American Financial. “As rates rise, some buyers on the margin will pull back from the market and sellers will adjust price expectations, resulting in a moderation in house price appreciation.”

But, Kushi added: “The other implication of a rising mortgage rate environment is the rate lock-in effect. Many homeowners have locked into historically low rates, and are less likely to move as rates move higher — this does not bode well for housing supply.”

Source: housingwire.com

Apache is functioning normally

Apache is functioning normally

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Feel less awkward about tipping with our Nerds’ tipping tips. Then learn about credit cards with high annual fees.

This Week in Your Money: Sean Pyles and Liz Weston discuss when to tip, when not to tip and how much you should tip — not just in restaurants, but also in places where people haven’t historically tipped, like grocery stores and self-serve frozen yogurt places. They also talk about the broader economic implications of tipping and different tipping standards around the world.

Today’s Money Question: Erin Hurd joins Sean Pyles and Sara Rathner to discuss credit cards with high annual fees: why are they so expensive, what benefits do they offer, and how can you make sure you’re not leaving money on the table if you use them? They talk about what to consider if you’re thinking about getting one, how to get the most out of your rewards points and understanding when it might be time for a product change.

Check out this episode on your favorite podcast platform, including:

More on tipping and credit card annual fees on NerdWallet:

Episode transcript

Liz Weston: Have we reached the tipping point when it comes to tipping service workers?

Sean Pyles: I think that I have. It seems like every restaurant, cafe and dry cleaner is asking you to tip nowadays. So in this episode, we’re talking about tipping. When to tip, when not to tip and how much you should be forking over.

Liz Weston: Welcome to NerdWallet’s Smart Money podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I’m Liz Weston.

Sean Pyles: And I’m Sean Pyles. Listener, we know you’ve got money questions, and you know that we Nerds are here to help you answer them. So shoot your questions our way.

Liz Weston: You can leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. You can also email us, [email protected]

Sean Pyles: In this episode, I’m joined by our co-host, Sara Rathner, to answer a listener’s question about how to make credit cards with high annual fees worth the money. But first, it is tip time. Liz and I are going to discuss our philosophies around tipping and give you some tips for tipping. I’m going to drive this thing into the ground.

Liz Weston: You already have. That’s fine. OK. So let me preface this by saying that I worked in restaurants back in the day, and I know that tipping waitstaff is so important. Depending on where you live, your servers could be making as little as $2.13 an hour, so they need tips to make any kind of a living wage. Bottom line, do not stiff the waitstaff. But I am getting cranky about all the other places that I’m being asked to tip, like for takeout. Why am I being asked to tip 20% when all you had to do was put food in the bag? And Sean, why is there a tip jar at a self-serve frozen yogurt place?

Sean Pyles: Yeah, it can be really awkward, especially if you’re being asked to tip for things that you really didn’t have to tip for historically, like self-serve frozen yogurt or going through a drive-thru. But you’re right. Tipping stations and jars and touchscreens seem to be everywhere nowadays. And we are a show about helping people make decisions with their money. And it strikes me that this is one of the most frequent decisions that we have to make. How much are you going to tip, and will you tip at all?

Liz Weston: OK, so where do you fall?

Sean Pyles: I try to be generous by default. For me, tipping 20% at restaurants is minimum. I’ll tip a dollar or two when I get a coffee. And if I have an ongoing relationship with someone like my barber, I’ll tip more. By the way, shoutout to Mike at Too Sweet Barbershop in Portland. He’s a lovely barber and a Smart Money listener. Anyway, how do you approach this, Liz?

Liz Weston: Well, I complain, but I’m pretty much a sucker. I will stick a buck or two in most tip jars if for no other reason than gratitude that I no longer have to work for tips. But you gotta wonder, when does this stop?

Sean Pyles: Yeah, we gave the example of tipping at a drive-thru earlier, and I think that sums this up well. The bottom line is that people need tips because they are being underpaid, some may even say exploited, by their employer. Or consumers also are just used to paying a certain amount for something like a burger out, and the workers rely on tips to make the whole thing stay afloat. And I kind of buy that for some smaller businesses. Where I take issue is with larger companies with large profit margins suddenly introducing tipping, like at the grocery store, which I’ve heard stories about online. If a large company is making their employees ask for tips, I do think they should be forced to disclose just how much their CEO makes annually. So this is something that I feel really strongly about. But what are your thoughts, Liz?

Liz Weston: Well, I think if there’s a tip jar on a counter, we can use it or not. And you gave the example of the grocery stores. My very first job was bagging in a grocery store and you were …

Sean Pyles: Same.

Liz Weston: Oh, really?

Sean Pyles: Yes.

Liz Weston: I don’t know about your store, but we were forbidden to take tips, and I once had a not unpleasant but uncomfortable interaction with an older customer who just really wanted to force money on me, and I really had to say no. But the idea was that the service was included, that people shouldn’t feel pressured to tip. So I think if you are being pressured in a situation where you’re not used to tipping, you can take a moment, take a breath, maybe set a custom tip. If you’re being presented with one of those tablet screens that has the preset amounts, you usually can set a custom tip. That option is typically there, so you don’t have to use the suggested ones. But again, do not stiff your waiter.

Sean Pyles: No. And if you feel like you’re being forced to tip someone in a place that you don’t feel comfortable doing that or you didn’t typically have to tip, I think that one route you can do is maybe tip them because the employee does frankly need the money most likely. But then also think about reaching out to management and talking with them about what’s going on. It might be a little bit awkward to have that conversation, but it can help you understand exactly why they’re doing this because some companies may be doing this to inflate their bottom lines, too, and it just feels a little bit icky, and it can also feel like a lose-lose for everyone involved because being pushed into tipping can be super aggravating as a consumer. So what’s really the solution? Is it that you don’t tip the underpaid worker in protest of their employer’s practice? That really just screws over the worker.

Liz Weston: Yeah, it’s a messed-up system for sure. I really like the way that they do it in a lot of other countries because the servers earn a living wage and they get health care and paid vacations. So a tip really is just an expression of appreciation. You can leave a euro or two at most places and feel good about it. And in some countries like Japan, tipping is pretty much nonexistent. I’ve heard it said that tipping in Japan is considered rude, which is not quite the case. Somebody else framed it as it’s just seen as weird. Why would you do that?

Sean Pyles: Yeah, we look at other countries and we see things like living wages, health care, paid vacations. It’s incredible. Makes me jealous a little bit. But also, listener, because we’re NerdWallet, we of course have an article about how much to tip for just about everything. The article also includes a handy tip calculator that will do the math for you. We’ll have a link to it in this episode’s show notes post. You can find that at nerdwallet.com/podcast.

Liz Weston: And here’s a few examples from the article. For beauticians, hairdressers, people doing your hair and nails, tipping between 10% and 15% is common. I’d say where I am in LA, 20% is probably more the norm. For hotel housekeeping, $4 or $5 a night, that’s a really good goal. If you stay in a hotel for five days, leaving a twenty [dollar bill] on the dresser should be fine. And for rideshare drivers, again, aim to tip between 15% and 20%.

Sean Pyles: And if you do find yourself feeling a little bit stressed out or overwhelmed about whether you’re supposed to tip and how much you’re supposed to tip, my bottom line is just try to bring some patience, grace and generosity to the interaction. The person on the receiving end of that tip will very likely appreciate it.

Liz Weston: OK, well, let’s get on to this episode’s money question.

Sean Pyles: This episode’s money question comes from Sue, who sent us an email. Here it is:

“I have a credit card with a high annual fee. The annual fee is now due, but we don’t really use it enough to warrant this great fee. We have about 300,000 rewards points in the account. My husband just got an offer for a card from the same company which offers a 125,000 reward points incentive. Would we be better off putting my card into a no- or low-fee card from this company and opening my husband’s card with this new offer? Can we then use the points from both cards for travel or do you have another suggestion?”

Sara Rathner: To help us answer Sue’s question, on this episode of the podcast we’re joined by credit cards Nerd Erin Hurd. Welcome back to Smart Money, Erin.

Erin Hurd: Hey, thanks so much for having me, Sara and Sean.

Sean Pyles: Erin, it’s great to talk with you. Before we get into the specifics of Sue’s question, one quick disclaimer. First, everything we’re going to discuss is just for general educational purposes and is not advice around how you should use your cards, regardless of how expensive their annual fees are. OK, with all that out of the way, let’s start by breaking down what’s going on with credit cards that have these hugely expensive annual fees. Why are they so expensive, and what do you get for it?

Erin Hurd: Yeah, they are really expensive. There’s a growing number of credit cards with these triple-digit annual fees, which to some people is almost unbelievable. I know it seems crazy to pay such a high fee to carry these cards, but the upside is that these cards come with a ton of perks, and they really can actually outweigh the annual fee if you can use all the benefits that come with them.

Sean Pyles: It’s a big caveat.

Erin Hurd: It’s a big caveat. Sometimes you really have to work for the value from these cards. But really, when you look at everything you get for that fee every year, it can start to make sense for some people, especially travelers in this case.

Sara Rathner: So the listener was mentioning that they don’t think they use the card enough to make that annual fee worth it. And you did mention that these are especially helpful benefits for frequent travelers. So how can people get the most out of an annual fee of that size? If you don’t travel much, should you just look for another card?

Erin Hurd: Yeah. So one quick thing I do want to point out here is that they were saying that they don’t use the card enough to justify the fee. And I just wanted to point out that actually using the card and utilizing its benefits are two different things. So even if you’re not using the card for everyday purchases, maybe it just kind of sits in your wallet and you use it periodically, it can still be worth carrying because of all the perks that come with it. So I just wanted to point out those differences there.

So, Sara, back to your question about how people can get the most from their annual fee. Well, the first step is you really need to know and understand all of the benefits and perks that come with those cards. And the key point is knowing what is current on the card because credit card benefits really can come and go over time. They can change. Usually, it’s bad news when they change, but sometimes it’s actually good news and perks are added and maybe you’re just not aware. So I really suggest on a semi-frequent cadence just taking a glance at the perks that come with your card and make sure you understand them all and the terms of those perks and to make sure that you’re using them.

Sean Pyles: Well, Erin, I would love to hear how you do this because it’s no secret that you’re a huge credit card nerd. So how do you track the perks that you get from your various cards with annual fees to make sure that you are getting your money’s worth?

Erin Hurd: Yeah, well, I wish I had a more exciting solution for you. I like to use an old-fashioned spreadsheet personally to keep track of all of my cards and their perks. It’s just an easy way to make neat columns and to understand right in front of you the perks. And then I kind of mark off when I’ve used them. So you really have to look at some of the cards on a monthly basis. And again, just really understand the terms of the benefits that come with the cards.

Sara Rathner: And some of those monthly credits, at least in this case, the monthly credits, you can’t bank them. So if you didn’t use the $15 last month, you don’t have $30 the next month to spend too, right?

Erin Hurd: That’s right.

Sean Pyles: OK. And so do you just list out all of the various benefits and maybe you say, “OK, it’s May. I used my Uber credit this month,” just to make sure you are using it? Is that kind of how you do it?

Erin Hurd: Yep, exactly. I just put a nice X right there in that box when I’ve used the credit, and then I look, open it again next month.

Sara Rathner: Yeah, that’s really helpful because at the end of your first year holding a card, you can look back and really see in black and white, did I meaningfully offset the cost of this card through my normal life activities, or is it actually not worth paying this annual fee? And suddenly you have all this data available to you to help make your decision.

Sean Pyles: And if you find that the card isn’t worth it, you can do what’s called a product change, where you can go from a card that has an annual fee to one that potentially has a lower fee or no annual fee. And this is something that our listener, Sue, is interested in doing. This can be a really great way to minimize the amount you are paying in annual fees, but I’m wondering about the points that you already have built up. So for example, would Sue, our listener, lose the points that they have if they do a product change to a different card?

Erin Hurd: Yeah, it’s a great question. It’s a great idea that Sue brought up with the product change. It is a really great option that a lot of people don’t know that they have when they’re deciding at the end of the year if their credit card is worth it or not. And the rules of the product changes really vary by card issuer. In most cases, you’ll have to stay within the same “family” of cards if you want to change that card, but it’s really important to remember that this all varies by credit card issuer. So if you’re looking to cancel or product change a card, you really want to understand what the options are and what the rules are in terms of keeping your points.

Sara Rathner: What about a situation where somebody just plain old doesn’t want to pay an annual fee anymore? They don’t want to do a product change to a card that potentially also has an annual fee for whatever reason. Maybe in the future down the line when Sue has redeemed all of her rewards points, so she doesn’t really want to keep a card open for the purposes of keeping her points active. Let’s talk about canceling your credit card. What are some things to think about before you decide whether or not to do that?

Erin Hurd: Well, the first thing that I would recommend is contacting the issuer and letting them know that you’re thinking about canceling and seeing if they give you any retention offers. Oftentimes, especially with these really high annual fee cards, they really want to keep you around as a customer. And so they’re willing to give you extra bonus points or some money towards a statement credit to help cover part of the annual fee. First, I would really recommend someone just inquiring about any retention offers that might be available.

So then if the person decides they really do want to go ahead and cancel, that’s simple, just call to cancel. But before we do that, we really want to make sure that we’re going to understand the potential impact to the credit score. If it has a substantial credit line and that credit line goes away, that plays into your credit utilization. So that could also affect your score. So those are just some things to be aware of before you pull the trigger and actually say, “Yes, I want to cancel.” But on the pro side, it’s simplified finances. That’s one less credit card to keep track of, everything will be in one place, and it’s one less annual fee to pay.

Sara Rathner: Well, Sue also has an interesting idea for getting her husband a bunch of rewards points with a sign-up bonus of their own, and it seems like they want to use those points in conjunction with the points they’ve already built up to book some travel. So if Sue’s husband gets a sign-up bonus on their own card, would they be able to combine them with the 300,000 points that Sue’s already built up, maybe if they’re authorized users on each other’s accounts, or would they have to book travel through their own accounts’ rewards portals?

Erin Hurd: Yeah, I love the way that she’s thinking. I love always kind of scheming and plotting on how we can get more points and get the most from our points. So the answer is that it depends. There’s a lot of nuances to this. And again, it really comes down to the rules by the issuer of the card. They each have different rules.

Sara Rathner: All right, Sue, you pay for the flights and then your husband gets the card, earns the points and pays for the hotels.

Erin Hurd: Exactly.

Sara Rathner: Sounds pretty good to me.

Sean Pyles: If a little bit complicated to maneuver.

Sara Rathner: Yeah, it can be. This is something that Erin, I know you and your husband do this all the time. It’s something my husband and I do as well. It’s a way to sort of double the bonus in some ways.

Sean Pyles: So, Erin, our listener, Sue, is clearly interested in some creative ways to minimize the expense of annual fees while still getting sweet rewards perks. Do you have any other suggestions for them?

Erin Hurd: Yeah, well, I really loved her train of thought there. Product changing when you’re not getting enough ongoing value from your card is a really great solution. And that’s the first thing that I would think of. So again, just to reiterate, if you’re thinking about the product change, just make sure you’re taking advantage of all those perks that come with the card that you currently have before you downgrade. I do have one other idea for her, and that is to strategize the timing of your initial credit card application.

Let’s say there’s a new card that you’re eyeing and it gives lots of benefits on an annual calendar basis. So you could apply for that card towards the end of the calendar year and you could utilize those perks for that calendar year. And then when the calendar changes to the next year, you would start fresh with those perks and you could utilize them all over again. So that way when your annual fee comes due, you’ve now used those benefits twice instead of once. And then at that point, you can evaluate whether you want to keep the card long term.

Sara Rathner: Yeah, this is absolutely something that I’ve done before. So let’s say a card comes with a $200 or $300 annual statement credit for travel, and you have travel planned at the end of the year, use that credit before New Year’s and then use it again in January to book travel for later in the year. And you’ve just gotten $400 to $600 in value out of the card right off the bat, and you’ve only paid one annual fee.

Erin Hurd: Right, exactly. I love it.

Sara Rathner: Until credit card issuers decide to put some sort of limitation on this, it’s a great tactic.

Sean Pyles: That is a good point that the terms and conditions and rewards are ever-changing. So when you are looking to maximize your points, make sure that you are up to date on what’s happening with your specific card.

Sara Rathner: Yeah, and one thing, pay attention to your emails. If you are a cardholder, you’re going to get emails that will mention to you if there are pretty major changes to terms and conditions of your card. And I know that it’s so easy to just delete these emails without reading, but they are great sources of information.

All right, Erin, well thank you so much for joining us today. Is there anything else that Sue or anybody else weighing this kind of decision should keep in mind as they shop around and consider their options?

Erin Hurd: I think my biggest tip is just to not leave money on the table. And so know the perks of your cards, use them, know the terms of them, and then after you’ve used up all the benefits, then decide if the card is worth keeping in the long run.

Sean Pyles: All right. Well, Erin, thank you so much for joining us.

Erin Hurd: Thank you.

Sean Pyles: And with that, let’s get on to our takeaway tips. Sara, will you please start us off?

Sara Rathner: Sure. First one, get your money’s worth. Understand the benefits of cards with annual fees and make sure you actually use them.

Sean Pyles: Next up, know your options. You might be able to switch to a card that doesn’t have an annual fee, but know what would happen with any accumulated points.

Sara Rathner: Finally, adjust as needed. Canceling a card is always an option. Just make sure you understand the trade-offs.

Sean Pyles: And that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected] Also visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you’re getting this podcast.

Sara Rathner: And here’s our brief disclaimer. We’re not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sean Pyles: And with that said, until next time, turn to the Nerds! This episode was produced by Liz Weston and myself; Kaely Monahan mixed our audio. And a big thank-you to the folks on the NerdWallet copy desk for all their help.

Source: nerdwallet.com

Apache is functioning normally

Apache is functioning normally

Home prices have increased significantly in many areas of the US in the last five years. But, the highest appreciating states may surprise you. California is often thought of as a highly appreciating state but did they even make the list? Alabama is often considered as a state with low home prices but how did their home prices fair the last five years? FHFA compiled a list of every state and how much the prices of their homes went up or down in the last quarter, year, 5 years, and since 1991.

Why have home prices increased so much?

You will see many reasons why people think house prices have increased recently. Many people will say investors are to blame or even boomers for not selling their homes. The media bombarded us with articles about investors buying all of the houses but the truth is investors have been selling more houses than they are buying and it is really simple why prices are increasing. The cost to build and repair has risen and there are not enough homes compared to how many people want to buy.

Towns, counties, and states are making it harder to develop land and more complicated to build houses. Whenever it becomes harder or more expensive to build or develop, it makes housing more expensive. I know it will not make many of you feel better, but the US still has the 5th most affordable housing in the world even after interest rates increased.

Country Price-to-income ratio
1 United Arab Emirates 3.0
2 Saudi Arabia 3.0
3 South Africa 3.4
4 Oman 3.6
5 Puerto Rico 4.5
6 United States 4.5
7 Qatar 5.3
8 Palestine 5.6
9 Belgium 6.5
10 Denmark 6.6
From: https://www.numbeo.com/property-investment/rankings_by_country.jsp

One reason why it seems like United States housing is so unaffordable is that after the last crash, housing was at the most affordable level ever. Prices were extremely cheap compared to wages. Prices were way below historical norms so when they moved back up it was a huge difference.

What states have seen the highest price increases?

It may surprise you which states had the highest appreciation in the last 5 years. A lot of people assumed California has really expensive housing so they must be one of the places with the highest price gains, but they are actually number 40! These gains are based on the percentage of increase and since California prices are already so high, their percent increase is not nearly as much as lower-priced areas.

State 5-year gain
Idaho 97.89
Florida 81.30
Tennessee 78.18
Arizona 76.51
Maine 76.41
North Carolina 75.50
Montana 74.03
Utah 71.87
South Carolina 70.84
Georgia 69.87
New Hampshire 67.12
Vermont 63.80
Rhode Island 63.02
Alabama 61.42
South Dakota 60.67
Indiana 59.41
Washington 58.64
New Mexico 57.40
Arkansas 57.29
Wisconsin 56.85
Nevada 56.58
Ohio 56.42
Missouri 55.90
Texas 55.74
Michigan 54.04
Kentucky 53.73
Hawaii 53.28
New Jersey 52.46
Oklahoma 52.14
Colorado 52.02
Nebraska 51.94
Wyoming 51.72
Virginia 51.51
Connecticut 51.30
Kansas 50.79
Massachusetts 50.65
Pennsylvania 48.77
New York 48.27
Oregon 48.22
Mississippi 46.79
Delaware 46.14
California 45.54
Minnesota 42.71
Iowa 42.59
West Virginia 38.50
Illinois 37.22
Maryland 35.90
Alaska 35.50
North Dakota 30.97
Louisiana 28.05
District of Columbia 22.76
This data is from: https://www.fhfa.gov/DataTools/Tools/Pages/House-Price-Index-(HPI).aspx

Alabama which was #1 in my list of landlord-friendly states came in with the 15th highest appreciation when many people may have assumed they would have been towards the bottom. My home state is Colorado and it feels like we have seen massive appreciation but Colorado is in the middle of the pack.

Will prices keep going up?

No one knows what will happen in the future with housing prices. There are so many variables and so many different markets with different rules and regulations. Many people thought higher interest rates would push prices down, which may have happened temporarily but they have been increasing again in 2023 in most markets. The 1970s was the highest appreciating real estate market in the last 100 years in the US and rates went from 5 to 10% in that decade. I talk about many of these factors in my monthly real estate market analysis. You can see the latest episode below.

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Source: investfourmore.com

Apache is functioning normally

Apache is functioning normally

On August 1, 2020, I took out a 7/1 adjustable rate mortgage (ARM) at 2.125%. I could have gotten a 30-year fixed-rate mortgage for 2.75%. However, I wanted to save 0.625% in interest.

Years later, mortgage rates have zoomed higher thanks to the pandemic, massive stimulus spending, a war in Ukraine, and supply chain issues. Inflation reached a 40-year high in June 2022.

Do I regret my decision to get an adjustable-rate mortgage over a fixed-rate mortgage?

My answer is “no,” and let me tell you why.

Why I’m Fine With An ARM Despite Higher Mortgage Rates

Back in 2020, we just had our second baby and wanted a fully remodeled home to house our family. We had been living in a home that was in the middle of a long gut remodel. Given I thought the remodel would take longer than expected, I decided to pounce on a nicer home.

I fully admit I did not anticipate inflation and mortgage rates surging to the levels we saw in 2022. However, despite higher mortgage rates, I still have no regrets getting an ARM.

I know I’m in the minority and will likely get heat for my views. But hear me out.

1) I’m saving money with an ARM

Instead of paying 2.75% for a 30-year fixed mortgage, I’m paying 2.125% for a 7/1 ARM. Every year that goes by, I’m saving almost $10,000 in interest expense.

Over the seven-year fixed duration, I will likely end up saving ~$65,000 in gross mortgage interest expense. Saving money feels great, not bad!

Even if I were to pay a much higher mortgage rate after my ARM expires, I have a $65,000 buffer before I start paying more due to getting an ARM. I calculate that break even period will start in the eleventh year of my ARM, even if mortgage rates stay at current elevated levels.

2) The house has appreciated in value

Buying the house in mid-2020 turned out to be a good move. The value of the house is up between $300,000 – $500,000, even after a 5% – 10% slump since 2022.

The combination of saving money on mortgage interest expense and experiencing home price appreciation feels lucky. The home price appreciation dwarfs any amount of increased mortgage payments I will need to pay after my ARM expires.

If the house depreciated in value, then I would still feel better knowing that I’m paying a lower mortgage interest than I had to. But of course, I wouldn’t feel as good.

3) ARM interest increases have limits

All ARMs should have a limit on how much the mortgage rate can increase the first year after the fixed-rate duration is over. Subsequent years also have interest increase limits. There is also a maximum mortgage interest rate limit increase for the life of the loan.

In my case, my mortgage rate can go up a maximum of 2% in year eight, another 2% in year nine, and up to a maximum interest rate of 7.125%.

Below is an example of an ARM interest limit increase of an $850,000, 5/1 ARM at 2.375%.

As you can see from the example above, the mortgage increases can go up every year up to a limit. Therefore, you can model out potential worst-case scenarios in the future to see if you’ll be able to afford your mortgage.

Thankfully, most people get raises and grow their net worths over time. As a result, they will be better able to handle higher payments in the future.

4) Mortgage principal gets paid down over time

Every month, $3,450 of my mortgage payment goes to paying down principal. In 84 months, when my 7/1 ARM expires, I will have paid off around $330,000 in principal.

If mortgage rates are higher in year eight, then I will pay a higher mortgage interest rate of up to 4.125% for one year. But I will also be paying interest on a ~20% lower mortgage balance.

As a result, my actual monthly payment will only increase by about one percent. Even if my mortgage interest rate increases by another 2% to 6.125% in year nine, my monthly mortgage payment will only increase by about nine percent.

The worst-case scenario of paying one percent to nine percent more in years eight and nine will be hardly noticeable. The average worker who receives two percent raises a year will easily be able to afford these higher payments.

5) Have the option to refinance

Nobody knows the future. However, before my ARM expires on August 1, 2027, I have the option to refinance.

It’s unlikely I can refinance to a similarly low rate of 2.125%. However, there’s a good chance I could refinance to another 7/1 ARM that’s under 4.125%, i.e. less than my first year adjustment’s maximum mortgage rate.

If I can do a no-cost refinance at a low rate, even better. Although you pay a higher mortgage rate in a no-cost refinance, if the mortgage rate is attractive, you’re still winning. Further, you retain the option to refinance again without feeling bad that you paid fees for refinancing.

I believe the long-term trend for inflation and interest rates is down. We’ve already seen inflation peak in June 2022 and come down every month since. I’m confident that sometime between now and August 1, 2027, I’ll have another window to refinance at an attractive mortgage rate.

Below is a chart that shows the historical trend of the average 30-year fixed-rate mortgage. Rates have been going down since the 1980s.

6) Fixed-rate duration of an ARM more closely matches my ownership duration

If I thought I was really buying a forever home in mid-2020, I would have been more inclined to lock in a 30-year fixed-rate mortgage and pay it down sooner. Instead, I got a 7/1 ARM partially because we will unlikely live in the house for much longer than seven years.

Based on my homeownership track record, we move every two-to-ten years given I’m an avid investor in real estate. My holding period is lower than the median homeownership tenure of roughly twelve years today.

I believe in buying a primary residence, updating it, living in it for at least two years to get the tax-free profits up to $250,000/$500,000 in profits, renting it out, and then buying another home. Over the course of a regular lifetime, a typical household could amass a four rental property portfolio by age 60 and retire comfortably off rental income.

Since 2003, I’ve been buying middle-class homes because that’s what most households can afford. I believe this is a smart way to invest in real estate. Investing in luxury property does not give as high of a return on investment.

Below is the average homeownership tenure from 2005 to 2022 according to Redfin. At about 12 years today, getting a 30-year fixed-rate mortgage is a big 18-year overshoot for the average homeowner. I’ve only owned my current home for three years and I’m already itching to upgrade homes. Know thyself!

Although I love our current house, I will likely be disappointed if we are still living in it seven years from now. This means we will have not relocated to Oahu. It will also mean we lived too frugally. In seven years, the house will likely decline to less than ten percent of our net worth.

As someone who has entered into his decumulation phase of life, my goal is to try and spend more money, not less. And one of the easiest ways to spend more money is to own a nicer house.

7) The worst case of paying more isn’t so bad

With principal paydown and the savings I’m accumulating from having a seven-year adjustable-rate mortgage, I will have a large buffer in case mortgage rates skyrocket in year eight and beyond. But let’s say mortgage rates do surge long after my savings buffer is exhausted. Not a big deal.

Chances are high that ten years after I first took out the 7/1 ARM, my net worth will be higher. That’s usually what happens when you continuously save and invest.

In an high inflation, high mortgage rate environment, we also get to earn higher risk-free income through Treasury bonds, CDs, and money market funds. For example, today we can all earn over 5% risk-free in one-year Treasury bonds. We can ride the inflation wave too.

Even if your absolute mortgage amount goes up, if the mortgage payment as a percentage of your income goes down, you will feel fine. There’s a reason why I encourage everyone to follow my 30/30/3 home buying rule.

8) An ARM keeps me motivated to grow more wealth by a particular time

Having an ARM motivates me to pay down debt quicker. When you have a shorter time horizon to get something done, you tend to be more focused.

If I had a 30-year fixed-rate mortgage, I wouldn’t work as hard, pay as close attention to my finances, or pay down debt as intentionally. With a 5/1, 7/1, or 10/1 ARM, I treat the introductory fixed-rate period as a deadline to earn as much as possible and/or pay down as much mortgage debt as possible.

One of the key tenets of a Financial Samurai is to achieve financial independence sooner, rather than later. Taking thirty years to pay off a mortgage is not the way. An ARM motivates me to take more action to secure my financial future.

Congrats To All Who Refinanced Or Got A New Mortgage At The Bottom

Refinancing or taking on a mortgage in 2020 or 2021 is one of the all-time great financial moves. It’s hard to see mortgage rates getting back to those levels again.

Whether you got a 30-year fixed-rate mortgage or an adjustable-rate mortgage, feel good knowing you got a historically low rate. The double benefit of living cheaply while experiencing property price appreciation is wonderful.

Although paying off your home might not provide joy long-term, when you finally do, you’ll appreciate that you were able to borrow so cheaply.

Despite an increase in mortgage rates, my preference towards adjustable rate mortgages has not changed. Based on my 20+ years of investing in real estate, I don’t want to pay more money on debt than I have to.

Reader Questions And Answers

Does anybody regret getting an ARM? If so, why? Does anybody regret getting a 30-year fixed-rate mortgage? If so, why? Do you think mortgage rates and inflation will stay elevated in 2027 and beyond?

If you’re looking to refinance or get a better mortgage rate, shop around online at Credible. Credible has multiple lenders who will offer real quotes and compete for your business. Also contact your existing bank to see what it has to offer. If you have good credit, you should get a lower rate than the national averages.

Join 60,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. 

Source: financialsamurai.com

Apache is functioning normally

Apache is functioning normally

Step into a world of art, history, and scientific wonder as we embark on a journey through the vibrant museum scene of Columbus, Ohio. Nestled amidst the thriving urban landscape and offering a treasure trove of cultural experiences, Columbus boasts an impressive collection of museums that will leave you awe-inspired. From renowned art institutions showcasing masterpieces from around the world to interactive science centers that ignite curiosity, these museums stand as pillars of knowledge and creativity. 

So whether you’re a long-time resident with a passion for art or you just moved into a Columbus apartment and you love science,  this Redfin article is for you. Let’s dive into the rich tapestry of Columbus museums and uncover the captivating stories and experiences they have to offer.

1. Columbus Museum of Art

The Columbus Museum of Art, located in downtown Columbus, Ohio, is a premier art institution that houses an impressive collection of American and European art. Visitors can explore a wide range of artistic styles and periods, from classical to contemporary. The museum’s collection includes works by renowned artists such as Monet, Picasso, and O’Keeffe. 

2. Center of Science and Industry (COSI)

The Center of Science and Industry, better known as COSI, is a dynamic science center in Columbus that provides an interactive and hands-on learning experience. Featuring a wide range of exhibits, visitors can explore various scientific concepts and phenomena through exciting displays, live shows, and demonstrations. 

COSI’s planetarium offers immersive journeys through space, while its engaging exhibits cover topics such as physics, biology, and technology. With its emphasis on exploration and discovery, COSI sparks curiosity and fosters a more in-depth understanding of the world around us.

3. Ohio History Center

The Ohio History Center is a captivating museum that delves into the rich and diverse history of Ohio. Through its engaging exhibits, visitors can uncover the stories of Native American cultures, early settlers, the Civil War, and the state’s industrial development. The museum features a vast collection of artifacts, including historical objects, photographs, and documents that offer insights into Ohio’s past. With its comprehensive displays and interactive experiences, the Ohio History Center provides a fascinating journey through the state’s heritage.

4. National Veterans Memorial and Museum

The National Veterans Memorial and Museum is a poignant tribute to the men and women who have served in the United States military. This museum offers a unique perspective on the personal experiences and sacrifices of veterans through powerful multimedia exhibits, firsthand accounts, and interactive displays. Visitors can gain a deeper appreciation for the diverse roles and impacts of military service on individuals and communities. The National Veterans Memorial and Museum serves as a place of reflection, honor, and gratitude.

5. Ohio Railway Museum

Train enthusiasts will find delight at the Ohio Railway Museum, where a collection of vintage railway cars, locomotives, and artifacts awaits. Visitors can explore meticulously restored train cars and learn about the history of rail transportation. Special events often allow for rides on historic trains, providing a nostalgic experience for both children and adults. With its dedication to preserving and sharing the railway heritage of Ohio, the museum offers an engaging and educational experience for those fascinated by the golden age of trains.

6. Billy Ireland Cartoon Library and Museum

The Billy Ireland Cartoon Library and Museum, located at The Ohio State University, is a treasure trove for cartoon and comic enthusiasts. It houses an extensive collection of comic strips, cartoons, and graphic novels, making it one of the world’s largest repositories of this unique art form. The museum offers visitors the opportunity to delve into the history and evolution of cartoons through its exhibits, archives, and engaging displays. 

7. Ohio Craft Museum

The Ohio Craft Museum is a vibrant destination for admirers of contemporary craft art. Through its rotating exhibitions, the museum showcases a wide variety of art forms, including ceramics, glasswork, fiber art, and more. Visitors can explore the diverse techniques and creative processes behind each piece, gaining an appreciation for the skill and craftsmanship involved. The museum’s gallery shop provides a unique opportunity to purchase one-of-a-kind handmade items crafted by talented artists. 

8. Wexner Center for the Arts

Situated at The Ohio State University, the Wexner Center for the Arts is a dynamic cultural hub that celebrates contemporary art in all its forms. Through thought-provoking exhibitions, film screenings, performances, and educational programs, the center fosters arcenter of scexperimentation, innovation, and dialogue.

9. Kelton House Museum and Garden

The Kelton House Museum and Garden is a beautifully restored 19th-century mansion that offers a glimpse into the history and Victorian-era life in Columbus. Visitors can take guided tours of the meticulously preserved rooms, adorned with period furniture, artwork, and personal belongings of the Kelton family. The museum provides an intimate and immersive experience, allowing visitors to imagine life during that time. The surrounding gardens, meticulously landscaped to reflect the Victorian style, provide a serene escape in the heart of the city.

Source: redfin.com

Apache is functioning normally

Apache is functioning normally

Let’s talk about home prices again because there have been numerous reports of eroding affordability and fears that we might be topping out just five short years after hitting rock bottom.

For example, the National Association of Realtors recently noted that the median existing-home price in February was up 7.7% to $228,400 from a year earlier (February 2016: $212,100), the fastest pace since last January (8.1%).

It also marked the 60th consecutive month of year-over-year gains, which if you’re doing the math, is five full years of gains.

A month ago, NAR chief economist Lawrence Yun referred to the rapid price appreciation as “concerning” because it was doubling the pace of income growth.

Meanwhile, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index (I feel like this title needs to be longer) chalked a 5.9% annual gain in January, up from 5.7% a month earlier.

The index also hit a 31-month annual return high, which forced Managing Director and Chairman of the Index Committee David M. Blitzer to address affordability concerns.

He argued that while higher home prices and mortgage rates may dent affordability and reduce the number of households able to purchase homes, the lack of inventory and strength of the economy means we likely won’t see a change in direction just yet.

Blitzer did admit “at some point” market forces would drive prices down, but said, “we don’t appear to be there yet.”

Supply and Demand Imbalance

  • While home prices feel really high
  • The supply/demand imbalance means they won’t come down
  • Until prospective buyers can no longer afford them
  • But it’s unclear when that will actually materialize

I think everyone feels the same way, that prices are too darn high, it’s just that no one knows when prices will fall, or by how much. And what the catalyst might be, other than affordability or a lack of willing buyers.

Everyone is referring to the current situation as an inventory crisis, with many potential move-up buyers trapped thanks to limited equity and/or a low mortgage rate they don’t want to let go.

That further limits the supply of starter homes, keeping renters out of the market as they watch home prices creep higher and higher.

In fact, Trulia reported that national housing inventory hit its lowest level on record during the first three months of 2017. I believe their data only goes back to 2012 though.

Still, the recent numbers are troubling – starter and trade-up home inventory fell 8.7% and 7.9%, respectively, year-over-year. And there wasn’t much a year ago either…

Basically, this means the entire housing market ecosystem is out of whack, with no sign of relief anytime soon.

Are Home Prices Really Expensive?

  • Home prices may not be as high as they look
  • When you factor in inflation, interest rates, wage growth, etc.
  • We see that real home prices remain 33.3% below the peak seen in 2006
  • Of course prices at that time were unsustainable so it shouldn’t necessarily be a benchmark

To add insult to injury, home prices might not even be that high, assuming you look at “real home prices,” those adjusted for inflation, wage growth, interest rates, etc.

The First American Real House Price Index (RHPI) measures single-family home prices after accounting for changes in incomes and interest rates.

They use median household income and mortgage rates to determine how much a particular consumer can afford. This allows them to measure house-buying power and in turn affordability.

What we wind up with is a very difficult picture than what you might see with other home price charts.

For example, real house prices are still 33.3% below their peak seen in July 2006, not that we should measure a healthy market based on that turbulent time. Still, it’s quite a margin.

Additionally, real home prices are 10.3% lower than they were in the year 2000.

Now can that all change in a hurry? Sure, and it is. In just the past year, real house prices surged by 8.2%.

If both mortgage rates and home prices continue to rise, we’ll hit another breaking point soon enough, assuming wage growth can’t keep up.

First American chief economist Mark Fleming noted that despite this, “affordability in most markets is still high by historical standards.”

As such, he expects another strong spring home buying season. Or at least lots of interest, despite a lack of inventory.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

Interest in residential mortgage loans fell 6.25% for the week ending April 1 as rates jumped yet again, ever nearer to 5%, according to the Mortgage Bankers Association‘s latest survey.

Refinance applications are in a free fall, as few borrowers these days have an incentive to change their current loans rates. Additionally, home price appreciation and insufficient for-sale inventory are holding back purchase activity.   

According to the MBA, refi applications fell 10% from the prior week and 62% from a year ago. Meanwhile, the seasonally adjusted purchase index decreased 3.4% from the prior week and was down 9% year-over-year.

“Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement.  

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200) increased to 4.90% from 4.80%. Meanwhile, for jumbo mortgage loans (greater than $647,000), rates on average jumped to 4.51% from 4.40% in the same period.

According to Kan, as higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019. In total, refinances share of all applications dipped to 38.8%, down from 40.6% the previous week and 51% a year ago.

Why lenders should think about non-QM now, not later

Agency rates are on the rise and refinance volume is down. Originators who had their best year in 2021 will have to utilize something else to make up for this loss in 2022 and non-QM can be the answer. 

Presented by: Angel Oak

Regarding purchases, Kan said the hot job market and rapid wage growth continue to support housing demand. However, surge in rates, home-price appreciation, and insufficient for-sale inventory is restraining purchase activity.

“Additionally, the elevated average purchase loan size, and steeper 8% drop in FHA purchase applications, are both indicative of first-time buyers being disproportionately impacted by supply and affordability challenges.”

The MBA found that the adjustable-rate mortgage share of the activity increased to 6.8% of total applications from 6.6%. The FHA share of total applications dropped to 9.2% from 9.3% a week earlier, and the share of VA applications increased to 9.8% from 9.5%. The USDA share remained unchanged at 0.5%.

The survey, conducted since 1990, covers over 75% of the retail residential mortgage applications.

Source: housingwire.com

Apache is functioning normally

Apache is functioning normally

Just prior to the mortgage crisis, stated income loans ran rampant, and once home prices took a turn for the worse, many of these loans defaulted at a fast clip.

Over time, it became clear that stated income was not the best way to measure a borrower’s ability to repay their obligations, especially when guaranteed home price appreciation was no longer around to pick up the slack.

The same seems to be true of loan modification performance, as evidenced by the conversion rate of mods under the Making Home Affordable program.

Loan servicers who have required income documentation prior to starting trial loan modifications have seen much greater success than those who haven’t asked for income documents upfront.

For example, subprime servicer Ocwen Financial Corp. (who required verified documentation) has seen an 83 percent success rate in converting trial loan modifications to permanent ones, while others accepting stated income have seen success rates as low as six percent.

In fact, juggernaut mortgage lenders like Bank of America, Wells Fargo, and Chase are seeing conversion rates at the low-end of the spectrum, at or around 25 percent, thanks in part to accepting stated income to get things going.

This seemingly haphazard approach (similar to the ways things were run prior to the crisis) may explain why 277,640 of the 1,214,085 trial loan modifications have already been canceled.

Fortunately, all loan servicers will be required to use verified income prior to starting a trial loan modification with an effective date on or after June 1.

That should result in a much better conversion rate for all loan servicers going forward, especially the big guys that don’t seem to be getting the job done.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

The Federal Housing Finance Agency (FHFA) is sounding the alarm over a high risk-based capital shortfall for Fannie Mae and Freddie Mac, exceeding their risk-based requirements and elevated operational risks. This is according to FHFA’s 2022 Annual Report to Congress published earlier this month.

“Despite considerable growth in each Enterprise’s loss-absorbing capacity (net worth), available capital remains in deficit, in large part because the Senior Preferred Stock issued by the Enterprises is excluded from regulatory capital,” the report reads. “The Enterprises remain undercapitalized, with a combined adjusted total risk-based capital shortfall of $421 billion, which exceeds their adjusted total risk-based capital requirements and buffers due to the Enterprises’ accumulated deficits.”

Credit risk management continues to be a priority at the GSEs, particularly due to the impacts of the COVID-19 coronavirus pandemic that is partially mitigated by borrowers’ exits from forbearance programs, the report explained. High levels of home price appreciation are also helping, but exposure to nonbank mortgage companies increased in 2021 due to increased sales to the GSEs.

Operational risks to the GSEs are also “elevated” due to the persistent presence of cybersecurity threats. However, some steps have been taken to improve the positions of the GSEs, including updated minimum financial eligibility requirements for Ginnie Mae and FHFA announced last August.

The report also makes a series of legislative recommendations related to the GSE’s regulatory capital for policies that cannot be implemented legislatively, including updates to FHFA’s authorizing statute, and additional flexibilities Congress could grant that would streamline the regulation of capital.

“In 2008, Congress amended FHFA’s authorizing statute to give FHFA relatively broad authority to prescribe regulatory capital requirements for the Enterprises,” the report reads. “The 2008 amendments, however, did not update the outdated definitions of regulatory capital from the original authorizing statute.”

Unlike the U.S. banking framework, the report points out that applicable statutory definitions include, “without limits, certain capital elements that tend to have less loss-absorbing capacity during a period of financial stress, such as deferred tax assets (DTAs).”

As it currently stands, FHFA’s authorizing statute “does not expressly permit FHFA to adjust the statutory capital definitions by regulation,” the report states.

FHFA’s Enterprise Regulatory Capital Framework (ECRF) as established in 2020 and amended in 2022 does mitigate risks associated with existing statutory definitions, supplemental requirements add “additional complexity to an already complex capital framework,” the report says.

“If Congress were to give FHFA the same flexibility as the federal banking regulators by amending or removing the statutory capital definitions, FHFA could streamline the capital regulation,” the report explains.

Source: housingwire.com