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Apache is functioning normally

While the good news continues to stream in, Trulia CEO Jed Kolko delivered one piece of not-so-rosy news regarding the white-hot real estate market this morning.

He told CNBC on air (rather dramatically) that prices have finally drifted lower, with asking prices off 0.3% month over month, which he called a “big change” from previous months.

While the number itself is quite marginal on the surface, it could indicate a shift in direction for the housing market after a seemingly nonstop upward trajectory.

He noted that quarter-over-quarter numbers are also beginning to slow down, though they aren’t necessarily lower just yet.

As I said two weeks ago, it appears as if housing is beginning to cool, though it will take some time for the numbers to reflect that, seeing that there is always a data lag.

“Moment We’ve Been Waiting For”

Kolko added that home prices have been rising so much so fast lately that if they kept moving at that pace, we’d find ourselves back in bubble territory within a few years.

Still, he said prices appear to be “a little bit undervalued,” assuming you compare them to long-term income and rents.

He did admit that prices have been rising similarly to what was seen during the previous run-up, though to a “much lower level.”

Perhaps they’re constrained by a lack of easy financing, with most lenders requiring much more out of their borrowers these days, as opposed to a credit report and a “choose your own income” box.

Of course, Kolko was able to spin the slow down positively, noting that with prices finally moderating, we should be able to avoid another housing bubble and subsequent crisis.

Three Reasons for the Price Slowdown

He said three factors were at play, including higher interest rates, an increase in housing inventory, and less investor demand.

As everyone knows, mortgage rates have shot up more than 1% over the past couple months, which has dented affordability, and perhaps interest in buying a home.

Secondly, inventory has increased, partially because it has become a lot more attractive to sell a home, and because some homeowners finally have the option, now that they’re no longer underwater.

Lastly, Kolko said the higher home prices have cooled investor demand, seeing that bargains are no longer easy to come by.

The biggest price slowdowns have been in the hottest markets, which include Las Vegas, the San Francisco Bay Area, and Sacramento.

In these areas, inventory was extremely tight and investor activity was so strong that prices were propelled higher and higher.

But it appears as if momentum is finally waning, and things could get even worse if mortgage rates continue to rise, and homebuilders continue to build.

The sky isn’t falling yet, but there does seem to be a little bit of caution in the air. Of course, it’s euphoria you need to worry about it – it’s when no one believes anything is wrong when things take a turn for the worse.

Read more: Five Reasons Inventory Will Begin to Rise

Source: thetruthaboutmortgage.com

Apache is functioning normally

Federal agencies urged mortgage companies and banks to be more vigilant in reporting compromised real estate transactions to their local financial crime units and to do so in specific ways that would increase the likelihood of an investigation.

According to representatives from both the Federal Bureau of Investigation and the Secret Service during a panel discussion Monday, instances of wire fraud, home equity theft, investment scams and elderly-related fraud have ticked up, while the methods used by bad actors have become more nuanced.

“[The mortgage industry is a target-rich audience for fraudsters] and they are targeting title companies and real estate brokers by compromising business email accounts. We see a lot of that,” said Stavros Nikolakakos, supervisory special agent at the Secret Service at the Compliance and Risk Management conference hosted by the Mortgage Bankers Association in Washington D.C. Monday. “If you don’t have direct contact information of your local law enforcement, [you should definitely establish that relationship].” 

A way for mortgage companies to help government agencies, such as the FBI and Secret Service, catch bad actors is by being mindful in how they fill out consumer complaints including the Internet Crime Complaint Center (IC3) form, which the bureau monitors and the Suspicious Activity Report (SAR) form.

“For those of you that enter SARS, I would strongly encourage you to not hold back in filling out this information, put your conclusion and the amount stolen at the very top,” Nikolakakos said. “When you have agents reviewing these SARS they only skim them. They cherry-pick because agents are looking for easy arrests and they’re trying to find the very best cases. “

Timothy Wu, Supervisory Special Agent, Financial Crimes Section, Money Laundering, Forfeiture, Bank Fraud Unit at the FBI, added that the volume of fraud complaints received can make someone’s “eyes start to glaze over.”

“Fraud in the mortgage space is not the same as in 2008 and our fraud portfolio is much smaller,” he added. “We are seeing HELOC fraud and application fraud — nothing new or ground breaking — but these practices have accelerated and gotten better.”

Cash attained by these criminal acts are usually transferred to Eastern Europe, West Africa or China by money mules, Nikolakakos added. 

Statistics published by the FBI show that business email compromise scams related to real estate set a record for dollar losses in 2022. The 2,284 complaints received last year amounted to losses totaling $446.1 million, compared with $430.5 million in 2021.

Those targeted by fraudsters have about 72 hours to report the event to the government before it becomes harder to investigate.

In a separate panel addressing fraud mitigation, Steve Safavi, vice president of mortgage fraud at Mr. Cooper noted that one of the best ways to prevent wire fraud is to be mindful of emails received prior to closing and the domain that is being used.

“As busy as you are at the end of the month, trying to get something funded it can get by,” he said. “Best thing to do is for title companies to call the lender and verify the wiring instructions. Have them repeat the payoff statement to you instead of vice versa.”

As fraud risk has increased, companies in the financial services sector have turned to vendors to protect their transactions and infrastructure. For example, recently Tata Consultancy Services announced a partnership with FundingShield to the fintech’s wire fraud prevention solutions available to the IT consulting company’s clients.

Source: nationalmortgagenews.com

Apache is functioning normally

Mortgage Rates Slightly Lower Today. Upcoming Inflation Data Could Have a Big Impact

Mortgage rates started the week slightly higher for the average lender, but still below last week’s highs.  Most of what was lost yesterday was gained back today.  

All of the above makes the recent movement seem bigger than it actually has been.  The last 5 business days have been some of the narrowest since mid-July with 30yr fixed rates moving less than 0.125% from trough to peak.

The absence of volatility makes sense because there’s also been an absence of big ticket economic data since last Wednesday. That will change tomorrow with the release of the Consumer Price Index (CPI).

CPI is the most closely-watched monthly inflation report.  Given that inflation is the biggest reason for high rates, markets are poised to react to any unexpected results.  Traders already assume that fuel/energy inflation will push the headline number higher, but that “core inflation” (which excludes food/energy) will be in line with last month’s reading.

The rate market is more focused on core inflation.  If it surprises to the high side, rates would likely rise–potentially abruptly.  If it comes in lower than expected, rates would likely move down.  The larger the departure from expectations, the bigger the potential move.

CPI will be released at 8:30am ET, which is before almost any mortgage lender has rates available to lock.  

Source: mortgagenewsdaily.com

Apache is functioning normally

The “Brady Bunch” house, renovated by HGTV, has sold for more than $2 million below its original asking price.

After spending the summer on the market, the Studio City property just closed escrow. Historic home enthusiast Tina Trahan, whose husband, Chris Albrecht, was once chief executive of HBO, scooped up the sitcom gem for $3.2 million.

In May, after purchasing the home for $3.5 million in 2018 and overhauling it in the series “A Very Brady Renovation,” HGTV listed the groovy digs for $5.5 million.

As to why HGTV accepted an offer more than $2 million below asking (and $300,000 shy of what it paid in 2018), Compass’ Danny Brown, the listing agent on the property, told The Times in an email, “This is a one of kind property which was impossible to comp. This is not a home anyone would ever live in.” Savvy investors, he said, understand that laws governing short-term rentals are “nuanced and restrictive,” limiting the value of the property for that use.

“We felt the property was worth about $3M – $3.5M and that’s exactly where it landed because there are no intellectual property rights that are included in the sale,” Brown said.

Built in 1959 with Late Modernist architecture, the house was used only for exterior shots during the sitcom’s five-season run from 1969 to 1974, followed by decades of syndication that cemented the mixed family of eight in the annals of American pop culture.

When HGTV bought the home, its interior bore no resemblance to the place where audiences watched the Brady children grow up. Scenes shot inside the Brady residence were filmed on sets built on Soundstage 5 at Paramount Studios in Hollywood.

In 2018, HGTV looked to meld the two realities and bought the house at 11222 Dilling St. for nearly double the original asking price. The channel outbid Hollywood celebrities, including former ‘N Sync member Lance Bass.

The network spent an additional $1.9 million to re-create the TV home where America came to know Mike, Carol, Greg, Marcia, Peter, Jan, Bobby and Cindy Brady. HGTV even added a second story to accommodate all the rooms that were seen in the show.

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HGTV documented the process on “A Very Brady Renovation,” which featured the six actors who played the Brady children. The cast, alongside HGTV hosts Drew and Jonathan Scott, worked to gut the house while the crew painstakingly reproduced the set’s rooms and 1970s decor — down to the cabinet hardware. The online listing for the house invited buyers to “own a piece of pop culture history” and showed images of its detailed and polished 5,140-square-foot interior, which has five bedrooms and five bathrooms.

HGTV said the home came equipped with “many of its contents, including customized pieces such as the green floral living room couch and the credenza with a 3-D printed horse sculpture.”

“HGTV spent about $5.5M+ purchasing and gutting the house which is why we listed it at $5.5M even though we knew it was an aspirational list price,” Brown said via email. “By the way, HGTV did fine making revenue on ‘The Very Brady Renovation’ show and several other ancillary revenue streams. As for my brother from another, Lance Bass, perhaps third time’s the charm?”

Times staff writer Jonah Valdez contributed to this report.

Source: latimes.com

Apache is functioning normally

The regulator overseeing Fannie Mae and Freddie Mac has introduced some new wiggle room into their deadline for modernizing credit reporting and scoring.

The Federal Housing Finance Agency in announcing the next stage of the project on Monday left open-ended the date for a planned transition that will give lenders the option to use reports from two rather than three companies on loans sold.

The FHFA said it now expects that “the implementation date for this bi-merge requirement will occur later than the first quarter 2024, as was initially proposed.”

The first quarter of 2025 remains the end-date on the timeline, but the FHFA noted in its latest update that deadlines could change in the future, confirming previous statements it’s made.

It also said it would offer more opportunities for public dialogue as stakeholders debate how fast the initiative should move forward. Some in the industry are urging deliberation to account for the way credit reporting and scoring is interwoven with a highly regulated mortgage process.

“FHFA’s reformulated implementation plan is an acknowledgment of the significant operational complexities and the magnitude of this effort on the housing finance system,” said Bob Broeksmit Bob Broeksmit, president and CEO of the Mortgage Bankers Association, in an emailed statement.

The Community Home Lenders of America said the additional opportunities for engagement FHFA and Director Sandra Thompson extended were welcome given mortgage industry concerns about the process.

“CHLA commends Director Thompson for announcing public listening sessions on the transition to updated credit score models and credit report requirements for loans,” the CHLA’s Scott Olson said in an emailed statement. Olson is CHLA’s executive director.

VantageScore, one of the two entities providing the updated scores with the aim of identifying mortgage-ready borrowers that the current methodology overlooks, urged the FHFA not to delay the change that was legislatively mandated in 2018 beyond another two years. 

“We will assist all mortgage originators to get an immediate start using VantageScore 4.0,” said Tony Hutchinson, senior vice president, industry and government relations, in an email. “Every day of delay is another day that working people who pay their bills on time are unable to get a mortgage.”

Source: nationalmortgagenews.com

Apache is functioning normally

While it’s impossible to predict the future when it comes to financial markets, it’s usually possible to identify the events that have higher potential to cause bigger swings. Other times, volatility strikes on days when it wasn’t entirely expected.

That’s how this past week began.  After Monday’s holiday closure, rates jumped higher on Tuesday morning without warning.  What would a “warning” have looked like?  It could be as simple as the presence of a scheduled economic report with a history of causing a volatile market response.  Tuesday had none of those, but it did have a legitimate market mover pulling the strings behind the scenes.

The puppet master in question is a bit esoteric without a quick refresher:

  • Interest rates are based on bonds.
  • The Fed sets a target for the shortest-term bonds, but the market trades it out from there.
  • There are all kinds of bonds. US Treasuries are government bonds.  Mortgage backed securities (MBS) are bonds tied to mortgage cash flows.  Municipal bonds finance local government operations.  Corporate bonds finance various spending/investment needs for large companies.
  • All these bonds are slightly different in their risk and reward, but they are all part of the same asset class in the eyes of investors.  Specifically, bonds are a “fixed income” investment that allow investors to receive a fixed schedule of repayment with interest.  

With all that out of the way, the following will hopefully make more sense.  Tuesday was the 5th biggest day ever for new corporate bonds being offered for sale.  The top 4 days all benefited from extremely large individual bonds from one company.  All 4 had at least one offering of $25 billion or more.  That made Tuesday all the more notable in that the largest bond was “only” $4.75 billion.

In other words, there was a deluge of new bonds competing for investors’ attention.  That means relatively lower demand for other bonds such as MBS.  When demand for a bond falls, it results in lower prices, and lower prices mean higher rates.  

The market knew that this week would be a healthy one for new corporate bonds, but reality exceeded expectations.  The bottom line is that the excess supply caused a bit of weakness across the entire bond market, including the part that dictates mortgage rates.

We also had some good, old-fashioned economic data hit the market on Wednesday, but it didn’t do us any favors either.  The ISM Non-Manufacturing Index showed the services sector growing more than expected in August.  This includes a separate index that showed higher prices as well.  In addition to rising more than expected, both indices give the impression they’re in the process of bouncing after correcting from the “too hot” levels in early 2022.

Stronger economic data and higher prices are two of the biggest enemies of rates.  It made Wednesday the worst day of the week for the average mortgage lender.  10yr Treasury yields provide a benchmark for interest rate movement this week and allow us to see more granular detail.

Things calmed down heading into the weekend with rates staying safely below the highs seen at the end of August, but that wasn’t much of a consolation in the bigger picture. 

The week ahead brings some high stakes economic data in the form of August’s Consumer Price Index (CPI).  This broad inflation metric has been one of the most important sources of influence for the market on any given month over the past few years and this one could be one of the more notable examples.

CPI has been falling in general, but the decline runs the risk of being misleading due to the broad decline in fuel prices that ended 2 months ago.  Last month’s data began to show the effects of that fuel price reversal and some analysts think it will be more apparent in next week’s report.  This has resulted in a wider range of forecasts than normal and that tends to result in a more volatile market response. 

Note the small bounce in “headline” inflation, which includes fuel prices versus “core” inflation which excludes fuel.  Like with the ISM data above, some market watchers think the economy has merely corrected from overly hot conditions and that growth/inflation could continue to be more resilient than expected.

To make matters more consequential, it is the “blackout week” for the Fed where members refrain from commenting on monetary policy in the 12 days leading up to a rate announcement.  That means the market’s imagination can run a bit wilder than normal when it comes to interpreting the CPI results.  

At the end of the day, everyone is trying to get to the same answer: is inflation truly defeated or does policy need to stay tighter to keep inflation from bouncing.  The following chart of monthly core inflation shows that we’ve only recently returned to target levels.  The market keeps waiting for the Fed to say that the return is sustainable and the Fed keeps saying “we’re not sure yet.” 

Source: mortgagenewsdaily.com

Apache is functioning normally

While negative equity levels keep drifting lower, there is still a large group of homeowners that must remain patient.

And by patient, I mean waiting another four years or so before simply breaking even, assuming home price forecasts hold true.

In Zillow’s latest Negative Equity Report, which I suppose has plenty more editions to come, the company noted that 23.8% of all borrowers with a mortgage were underwater as of the end of the second quarter.

While still elevated, that number is down from 25.4% in the first quarter and 30.9% a year ago, the fifth straight quarterly decline thanks to rapidly ascending home prices.

It’s expected to drop to 20.9% by the second quarter of 2014, freeing another 1.96 million homeowners from negative equity.

During the second quarter, roughly 800,000 homeowners were finally able to see the light of day, with the total number of underwater homeowners dropping from 13 million to 12.2 million.

A year ago, 15.3 million homeowners couldn’t get a breath of fresh air.

For the record, about one-third of all homes do not have a mortgage, so the negative equity rate for ALL homeowners is significantly lower at just 16.7%.

Not Everyone Is Sitting So Pretty

While the numbers are clearly improving steadily, there is still a large group of homeowners that have a ways to go before getting back in the black.

In fact, 57% of homeowners have a loan-to-value ratio of 120% or more, so with home values expected to rise 4.8% annually over the next year, it would take another four years to simply get back to even (assuming appreciation keeps up).

Even worse, one in seven negative equity borrowers still owes more than twice what their home is worth. You might think it’s amazing that they’ve stuck around this long…I do.

For this group, it will take many more years to break even, and that’s still not enough to actually part with the home.

Zillow defines those with less than 20% home equity as being part of the “effective” negative equity group because listing a home and buying a new one generally requires that amount for expenses, commissions, and down payment.

So it will be a very long road for these homeowners to go from 200% LTV to 80% LTV. It also means that a lot of inventory will essentially be locked up for years to come, even a decade or longer.

Las Vegas Still the Negative Equity King

Despite being the home price leader in the nation over the past year, Las Vegas still leads in negative equity as well.

Kind of a symbolic way of summing up Sin City, where there are big winners alongside those down on their luck.

In the desert oasis, 48.4% of homeowners with mortgages remained underwater as of the end of the second quarter, down from 54.3% a quarter earlier. By the end of the second quarter in 2014, it should fall to a slightly healthier 41.3%.

The second worst metro in the U.S. was Atlanta, where the negative equity share dipped to 44% from 47.6% a quarter earlier.

Third was Disneyworld (I mean Orlando, Florida) with negative equity of 39.8%, down from 41.8% in the first quarter.

In these three hard-hit regions of the country, the “effective” negative equity rates were 66.9%, 61.3%, and 55.4% as of the end of the second quarter, respectively.

Nationwide, the “effective” rate is still 41.9%, meaning we’ve got a lot longer to go before the crisis abates.

Read more: How to refinance with negative equity.

Source: thetruthaboutmortgage.com