Georgia Senator Johnny Isakson has reintroduced legislation aimed at boosting the homebuyer tax credit from $8,000 to $15,000 for not only first-time homebuyers, but for all homebuyers.
A similar proposal failed to gain inclusion in the stimulus package that became law earlier this year, but increasing desperation in the flagging housing market could see such a bill through, with the MBA already pledging support.
Specifically, the bill would increase the homebuyer tax credit to a maximum of $15,000, make it available to all homebuyers, and eliminate income caps of $75,000 for individuals and $150,000 for couples, effectively expunging the limit.
The proposed legislation would extend the tax credit for one year from the date of enactment and allow homebuyers to claim the credit on 2009 tax returns for home purchases made in 2010.
“The first-time homebuyer tax credit has made a difference. First-time home buyers used it and the market stabilized, but we don’t have a recession in first-time home buyers. We have a recession in the move-up market,” Senator Isakson said in a statement.
“One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can.”
The hope is that such a tax credit will boost home sales and subsequently stabilize home prices while diminishing foreclosures.
Unfortunately, home builders continue to look for concessions instead of lowering home prices to more reasonable levels.
“Today, in the United States, one in two sales made every day is a short sale or a foreclosure. That is an unhealthy market, and it is continuing to precipitate a downward spiral in values, loss of equity by the American people and a protracted, difficult economic time for our country,” Isakson added.
Minneapolis-based U.S. Bank, the fourth-largest U.S. mortgage lender, is laying off staffers in its mortgage division this week, a spokesperson confirmed on Tuesday.
The announcement follows a decline in its mortgage originations in the first quarter of 2023 – the second-quarter earnings will be released on Wednesday morning.
The current jobs cut also comes amid rumors that depositary lenders would see changes to their residential mortgage capital requirements under the Basel III regulations.
“At U.S. Bank, we make decisions that position us well for today’s market and in the future,” a spokesperson told HousingWire. “As a result, we have made the difficult decision to reduce resources in certain roles aligned to areas of the business that continue to slow – while investing in others where we see growth potential.”
The spokesperson did not provide further details, such as the number of employees affected. Inside Mortgage Finance first reported news of the layoffs.
U.S. Bank, owned by U.S. Bancorp, was number four among mortgage originators in the U.S. in the first quarter of 2023, according to IMF estimates.
However, mortgage volume has been in free fall at the bank amid surging rates. The bank’s total mortgage origination volume reached $9.6 billion from January to March, down 41.7% year over year.
The bank tries to maintain a balanced portfolio between retail and correspondent lending. From January to March, the bank originated a $4.47 billion volume in the retail channel and $5.8 billion through the correspondent channel, per IMF estimates.
U.S. Bank would be affected by new residential mortgage capital requirements under the Basel III rules, which are expected to be released on July 27, according to a Bloomberg report. Under the latest draft proposal, risk weights of 40% to 90% would be assigned for large banks, depending on the loan-to-value ratio. The current rule sets a 50% risk weight on most first-lien residential mortgages.
The bank announced in December 2022 that it would close the wholesale mortgage businesses it inherited in the acquisition of California-based MUFG Union Bank.
U.S. Bank closed the acquisition of MUFG’s core regional banking franchise from Japan-based Mitsubishi UFJ Financial Group at the beginning of December 2022, adding 1 million consumers and about 190,000 small business customers on the West Coast.
The spokesperson said the layoffs are “not related to or specific to Union Bank.”
(Yicai Global) July 17 — Chinese banks have yet to respond to the People’s Bank of China’s suggestion that they lower the interest rates of existing mortgages. This is because home loans make up a large percentage of their lending and the move will have a negative impact on them, Yicai Global has learned.
Lenders are mulling rate adjustments based on their particular circumstances, a person working at a joint stock bank told Yicai Global, adding that the implementation schemes are expected to vary from bank to bank.
Commercial banks and other kinds of lenders are encouraged to amend contracts with borrowers through voluntary negotiations in accordance with market-oriented principles and the rule of law, Zhou Lan, head of the department of monetary policy at the People’s Bank of China, said on July 14.
Banks can also issue new loans at a lower rate to consumers to replace existing loans at a higher rate, Zhou said.
Most of the bank staffers contacted by Yicai Global, including Bank of China, China Construction Bank, Bank of Hangzhou and Bank of Ningbo, said that they are still using the mortgage rates based on the original contracts as they have yet to be notified of rate policy adjustments by their respective supervisors.
A rate cut scheme has not been rolled out yet, said the Guangdong province branch of a major bank.
The PBOC’s proposal can help apartment buyers to cut their financing costs, and to some extent, reduce the risk of them breaching their borrowing agreements by repaying their mortgages earlier, which could cause the bank to lose out on the income it earns from interest, said Xue Hongyan, deputy director at research body Star Atlas Institute of Finance.
But according to banking insiders, the move will just make things harder for banks, especially those with a high proportion of personal mortgages, said Liao Zhiming, chief banking industry analyst at China Merchants Securities.
‘For banks, especially big ones, lowering the rate of existing mortgages will cause short-term pain,” said Dong Ximiao, chief researcher at Merchants Union Consumer Finance.
Difficult Decisions
China’s six state lenders as well as China Merchants Bank and Industrial Bank all had extended over CNY1 trillion (USD139.4 billion) each in home mortgages as of the end of last year, according to Wind Information data.
Among them, China Construction Bank had issued the most home loans at CNY6.5 trillion, taking up over 79 percent of its overall personal loans. While the ratios at Industrial and Commercial Bank Of China, Agricultural Bank of China and Bank of China were all over 70 percent.
“Lowering the rate of existing mortgages will put huge pressure on these banks but it seems that they have little choice or they face losing customers,” a credit loan manager at a big state-owned bank said.
“If a lender does not reduce its mortgage lending rate, a customer could pay off the loan by borrowing from another bank at a cheaper rate, and thus switch banks,” said Zheng Dayuan, general manager at a mortgage agent firm based in Guangzhou city.
The loan prime rate for loans of five years or more has been adjusted seven times since 2019 as the macroeconomy slows. And the lower limit on mortgages for first-time buyers sank to under 4 percent in over 40 cities, according to the China Index Academy.
In the first half, the weighted average rate of newly issued individual mortgages tumbled 107 basis points year on year to 4.18 percent, the lowest level since statistics began.
Between 2018 and 2021 rates were above 5.4 percent at most banks and reached a peak of 5.7 percent, according to data from CSPI Ratings, a unit of China Securities Credit Investment. Homeowners who signed their mortgage contracts during this period will be highly motivated to look for refinancing in order to cut their interest repayment burden.
Read More: Western Asset Mortgage Capital, Terra Property Trust share merger plans However, AG Mortgage president and CEO T.J. Durkin noted that WMC has seen a 10.1% decline in its share price since announcing its merger plans with TPT on June 28. Meanwhile, MITT said its offer represents an 18.2% premium to WMC’s closing share … [Read more…]
Owning a house is everyone’s dream. We all work hard in our lives to achieve our dreams. However, it is not easy today to buy a house in metro cities. Prices of residential real estate units have gone up like anything. It is nearly impossible to pay the full price of the house unless one has huge savings already. For a middle-income earner, the only visible choice is taking a home loan and paying it back over the years. Applying for a home loan has its own set of rules and requirements.
In this article, we are going to discuss all you need to know about joint home loans. As the name simply suggests, a joint home loan is a loan which is taken jointly with another person, usually spouse or parents. There are multiple reasons as to why people apply for joint loans rather than individual loans, some reasons are:
Increased loan eligibility: When two people apply for a home loan together, their combined income is used to calculate the loan amount. This can lead to a higher loan amount being approved, which can be helpful if you are looking to buy a more expensive home.
Creditworthiness: This applies to all types of loans, the lenders always check your credit score before deciding the eligibility in terms of loan amount, tenure, and interest rate. It is easy to avail the loan if you have a strong credit history in terms of timely repayment.
However, if your credit history is not very strong, a co-applicant can be added to the loan proposal so that bank can have additional comfort about the loan proposal and there would be two people involved in repaying the loan rather than single person exposure.
Shared responsibility: When you take a home loan jointly, both borrowers are equally responsible for repaying the loan. This means that if one borrower is unable to make a payment, the other borrower is still obligated to do so. This can be a good option for couples or other partners who want to share the responsibility of owning a home.
Lower interest rate: Some lenders offer lower interest rates on joint home loans. This is because they are considered to be lower-risk loans, as there are two borrowers who are responsible for repaying the loan.
Tax benefits: As per the income tax regulations, joint home loans allow both co-borrowers to claim tax benefits under Section 80C as well as Section 24.
Section 80C: Amount of principal repayment can be claimed under this section up to Rs. 1.5 lakhs per annum by each of the co-borrowers.
Section 24: Amount of interest paid as a component of EMI can be claimed under this section up to Rs. 2 lakhs per annum by each of the co-borrowers.
There are also multiple disadvantages of having joint home loan, some of these are:
Default by a co-borrower: If one borrower defaults on the loan, the other borrower may be held liable for the entire amount. Additionally, the credit score is affected negatively for both the borrowers even when another co-borrower has been paying on time.
Separation: Usually the joint home loans are availed by married couples. This can raise all sorts of legal problems if the co-borrowers are married to each other and get separated by divorce even as the home loan remains to be repaid. To further complicate the issue, If the property is registered in the name of one co-borrower, then after the loan has been fully repaid, he/she will become the rightful owner even if the other co-borrower has also paid their share of the EMIs.
Credit score: Default by any one of the co-borrowers affects the credit score of all the borrowers. This impairs the ability of a genuine borrower to borrow in future.
Few things that should be kept in mind before applying for a joint home loan:
Do not apply for a joint loan just for the formality. Usually, banks ask for a co-borrower just to reduce their risk. However, if your credit score is decent and your income eligibility allows for a required loan amount then you should not involve a co-borrower unnecessarily just for the sake of formality.
Do not apply for a joint loan just for the sake of tax deduction. Dual tax deduction might sound tempting but in case of separation or disputes, it could affect the title of property and make it difficult to sell due to legal complications.
Do not apply for a higher loan amount just because you can do it with the help of a co-borrower. Always keep in mind that the EMI amount should be well within a reasonable limit that can be paid out in due course. Once you borrow money from a bank, there is no turning back.
Rohit Gyanchandani is Managing Director at Nandi Nivesh Private Limited
As per RBI data, home loans grew 8.4% between March and October, faster than the preceding six month period during which there were no hikes.
The slower housing market at the start of the year was not enough to prevent Fidelity National Financial from turning a profit.
During the first quarter of 2023, the Big Four title insurer reported revenue of $2.474 billion, down from $3.167 billion in Q1 2022, and a net income of $59 million compared to $400 million a year prior. Fidelity’s title segment reported revenue of $1.6 billion for the quarter, down from $2.4 billion a year ago, and a net income of $128 million, a decline compared to $191 million in the first quarter of 2022.
“We are pleased with our solid performance in the quarter as we continue to navigate a volatile and challenging environment,” Mike Nolan, the CEO of Fidelity, told investors and analysts on the firm’s first-quarter earnings call Thursday morning. “Starting with our title business, the focus remains on providing our customers exceptional service, protecting our policyholders and building our business for the long term.”
However, as Nolan acknowledged, these strong financial results came at a cost. In 2022, Fidelity laid off 26% of its field staff net of acquisitions, one of the largest cuts in the company’s over 175 year history. The headcount reductions continued into 2023, as Nolan reported that Fidelity laid off an additional 2% of its staff in Q1.
Thanks to these cuts, however, personnel costs for the quarter were down 23% year over year in the firm’s title segment alone.
This was good news for a segment that recorded sizable annual decreases in the number of purchase orders opened per day (29%), the number of refinance orders opened per day (67%), and the number of commercial orders opened per day (27%).
In addition to the drop in order count, direct title premiums fell 44% from a year ago to $428 million, agency title premiums were down 50% year over year to $550 million, and commercial revenue posted a 36% annual decline to $241 million.
Among all of these yearly decreases, however, there was some positive news. The number of purchase orders opened during the quarter was up 20% compared to the fourth quarter of 2022, and the average total fee per file was up 19% year over year to $3,446.
Executives also noted that in April, despite being down 23% year over year, purchase order volume was the best Fidelity has seen since August 2022.
“We expect the volatile market environment will continue to provide both headwinds and tailwinds for market participants,” Nolan said. “On the residential side, although there is not yet firm footing for rates in home affordability, there are solid fundamentals, such as pent-up demand, a growing working age and first time buyer population, that are expected to support a rebound once rates move downward and sellers and buyers more fully return to the market.”
One interesting item of note during Fidelity’s call came in response to a question on executives’ thoughts on the rumored Fannie Mae pilot program and the attorney opinion letters.
“We have talked with Fannie Mae and FHFA through ALTA [American Land Title Association] and even ourselves, and in regards to the rumor on the potential pilot with some kind of title waiver, we have not seen a proposal or anything that we could evaluate and respond to. But we have been really trying to impress upon the agencies that those kind of programs are untested and could lead to more uncertainty,” Nolan said. “At this time, we don’t know if there is a proposal that will come out or not. And then, with the acceptance of AOLs, there has been very little uptick on that, as they have indicated, and we don’t think that it is a lower cost alternative. It may even be more expensive — and we certainly think it is a lesser value product.”
AG Mortgage Investment Trust, Inc. entered into a dispute with Terra Property Trust, Inc. for Western Asset Mortgage Capital Corp., the company announced on Thursday.
AG Mortgage, a pure-play residential mortgage REIT controlled by Angelo Gordon & Co. and owner of mortgage lender ARC Home, made a stock-and-cash offer for its peer Western Asset, managed by Franklin Resources, Inc.
The publicly traded REIT is offering $9.88 per share, representing $60.5 million in aggregate and an 18.2% premium to Western Asset’s closing stock price as of July 12. The deal values Western Asset at $300 million, including debt.
The bid includes an implied value of $8.90 per common share ($54.5 million in total) and $0.98 per share in cash to shareholders ($6 million in total). In addition, AG Mortgage is waiving $2.4 million in management fees in the first year after closing.
AG Mortgage would issue newly listed common shares to Western Asset shareholders on a book-for-book basis, consisting of 31% ownership of the combined company. The REIT would also expand its board to include up to two members from Western Asset’s independent directors. AG Mortgage has Piper Sandler as its financial advisor.
“Our complementary core competences in residential mortgage credit would establish an even more efficient and competitive company,” T.J. Durkin, president and CEO at AG Mortgage, said in a letter to Western’s board. “Our proposal provides closing certainty and does not accelerate WMC’s convertible notes while also benefiting WMC stockholders.”
The AG proposal comes a few weeks after Terra Property, managed by Mavik Capital Management, and Western Asset announced that they entered into a definitive agreement to combine in a book-for-book deal.
On June 28, the companies announced the transaction would create a REIT with $1.2 billion in assets and $436 million of adjusted book value upon completion of the merger. The deal represents a private-to-public transaction for Terra Property.
The transaction valued Western Asset at $17.30 per share, but the REIT’s stocks have been trading down since the announcement. Investors have been skeptical about Terra Property’s shares value as it’s a non-traded REIT.
When announcing the deal with Terra Property, Bonnie Wongtrakool, CEO of Western Asset, said the transaction provides a greater market capitalization for the REIT based on recent trading levels.
“With reduced leverage levels and increased liquidity as a combined company, we believe WMC shareholders will greatly benefit from the partnership of a well-capitalized institutional partner in TPT, which brings a proven track record and has developed broad and deep expertise investing across cycles, property types, and markets,” Wongtrakool said.
Western Asset, a non-QM player, announced in 2022 it was exploring a potential company sale or merger in the wake of posting a $22.4 million net loss for the second quarter that ended June 30, 2022.
A spokesperson for Western Asset did not immediately reply to a request for comment.
Boston Mayor Michelle Wu is offering hefty tax breaks to companies to turn offices into housing, the latest example of a city seeking to address the challenges of remote work hitting downtowns and a lack of affordable residences.
Wu announced a program this week to encourage conversions by taxing developers at the city’s much lower residential tax rate. The city would then offer a discount of up to 75% on the residential levy, so for a building with an assessed value of $10 million, annual property taxes would drop to as low as $26,850 from as high as $246,800.
There’s no shortage of potential buildings to tap. Boston’s office market has seen its vacancy rate climb to 14.2% during the second quarter, the highest level in two decades, according to data from CBRE Group Inc. Meanwhile, the city of 650,000 is struggling with escalating housing costs. Median monthly rent for a one-bedroom has jumped 8% in just a year to $2,800, Zumper figures show.
“We must take every possible action to create more housing and more affordability so that Boston’s growth meets the needs of current and future residents,” Wu said in a statement.
Boston’s Wu isn’t the only mayor trying to shore up commercial real estate in their city. In San Francisco, the poster child of cities struggling to revive from Covid, Mayor London Breed wants to use tax incentives to lure new businesses. New York’s Mayor Eric Adams has urged Wall Street to get workers back into offices and also recommended turning empty commercial buildings into homes.
Boston’s program will offer a test case for the viability of office-to-housing conversions backed by tax breaks. Even with the incentive, conversions are often too expensive and complicated to make sense for developers. Many office buildings have large, dark floor-plates that are hard to divide into livable homes. The costs of such projects are also often higher than simply building a new tower from the ground up.
Boston found that reducing the tax rate on residential property by up to 75% for as many as 29 years could “provide a strong incentive to encourage conversion.”
The Brookings Institution said in a recent report that office-to-residential transformations are not a “panacea” and governments should be careful before rushing to fund them. Conversions often aren’t possible without significant government funding, Brookings said.
A separate study found that conversions in San Francisco, for example, can cost $472,000 to $633,000 per unit before necessary seismic upgrades.
Boston’s conversion program plans to accept applications this fall through June 2024, but it’s unclear how much the proposal will cost.
“We may get one, we may get ten, we may not get any, we won’t know what the tax impact will be until we receive the proposals,” said James Arthur Jemison, the city’s planning commissioner.
“Developers and owners are saying I could convert my building or I could try to re-lease and get other tenants, and that is where another hurdle exists,” Jemison said. “As values have declined it’s become more interesting for people to make the conversion.”
Financial Stake
Boston is home to State Street Corp., Wayfair Inc. and General Electric Co. Tech firms though dominate the businesses that are looking to sublease their office space, according to CBRE.
Boston’s downtown, which is home to about half of city office space, has been hit hard by the pandemic compared to other neighborhoods. An October 2022 report commissioned by the city found that economic activity downtown remained 20% to 40% below pre-pandemic levels for industries like retail.
Boston, like other cities, has a financial stake in reviving the office market. The city relies on property tax revenues for about three-fourths of its general fund budget, according to S&P Global Ratings, which gives the city its AAA credit rating.
Dora Lee, director of research at Belle Haven Investments, said it’s important for cities to be responsive to disruptions given the potential hit to their finances.
“These plans have been very popular but it’s not like these offices will be converted overnight,” Lee added. “This is a years-long process.”
U.S.
President Donald Trump’s administration last week put forward
several proposals aimed at modernizing the Federal Housing Finance
Agency and ending the federal government’s decade-long
conservatorship of the government-sponsored enterprises.
The
proposals came following a demand from President Trump that
responsible agencies come up with some meaningful reforms to the
system, in order to reduce risk for taxpayers in future economic
downturns.
The U.S. government took control of Fannie Mae and Freddie Mac during the 2008 financial crisis, putting it under the conservatorship of the FHA. It also invested $191 billion into those agencies. Since then, both Fannie and Freddie have returned to profitability, and paid back almost $300 million into the U.S. Treasury, the Los Angeles Times reported.
Besides
ending conservatorship, the government has suggested various reforms
to protect Fannie and Freddie in future, including expanding private
markets and creating more competitors in the home loan industry. The
timeline for the proposals is still vague, and more details will be
provided in future, but the National Association of Realtors was
quick to commend the initiatives.
“We look forward to reviewing the proposal in more detail and are optimistic that, at a minimum, the White House’s efforts will shed light on the remaining mile markers on the path to reform, along with the critical role GSEs and the Federal Housing Administration play in America’s housing market,” NAR President John Smaby said in a statement.
Smaby
added that the association remains committed to working with the
White House and Congress to secure “pragmatic improvements to our
housing finance system.”
He
further said the NAR will remain vigilant in negotiating provisions
to protect the housing market and the important role government plays
in ensuring the flow of capital for housing.
The
NAR had previously proposed its own blueprint for GSE reform, which
“highlights competition, protects taxpayers, and remedies the
failures of the pre-crisis system while ensuring equal access for
responsible, mortgage-ready Americans in every community—safeguarding
the role the GSEs were intended to play in our housing market,”
Smaby said.
The
Obama Administration also released a housing finance reform proposal
in 2011. Like that proposal, the new White House proposals face high
regulatory and legislative hurdles, and NAR analysts say you can
expect no change in the near term.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]