CFPB Launches Education Campaign Ahead of New Mortgage Rules

With new mortgage regulations due to be implemented in less than a month, the Consumer Financial Protection Bureau (CFPB) has released a set of materials designed to educate both homebuyers and homeowners about the new regulations and how they can be used to protect homeowners and ease the home buying process.  CFPB also released a manual summarizing the new regulations and designed to be used by housing counselors.

The materials, all available on the Bureau's website, explain what a Qualified Mortgage is, why the category was designed, what it does for consumers, and how to find one in the mortgage market.  Consumer rights under new rules effecting mortgage servicers are also explained, as are ways to gather information about an existing loan and to get help if the rules are violated.

The materials are in several formats:

Factsheets: There is a two-page factsheet with an overview of all of the new consumer protections in the Bureau's mortgage rules.  It explains what a WM mortgage is and why it protects the borrower including an explanation of its protections against steering and high fees.  It also lays out the consumer protections afforded borrowers under new servicing rules and explains how to file a complaint with CFPB for any violations of the rules.  A second factsheet is a summary of the new procedures to facilitate borrower's access to foreclosure avoidance options.

Tips:  There are separate tip sheets homebuyers looking for a mortgage, for homeowners on how to get the most out of their mortgage, and one for troubled homeowners facing foreclosure. 

Tools:  CFPB also has added questions and answers about the regulations to its interactive AskCFPB website tool and reminds consumers that its website also offers tools to find local housing counseling agencies to answer their questions or address their concerns. Consumers that have an issue with consumer financial products or services, such as a mortgage, can also submit a complaint on the site.
"Taking on a mortgage may be the largest financial obligation of a consumer's lifetime," said CFPB Director Richard Cordray. "We want to make sure that potential homebuyers have the information they need to make responsible decisions and that current borrowers know about their new protections."

 The Bureau says it is working with industry, housing counselors, and consumer groups to promote a smooth implementation of the new rules.  Most of the rules, including the new Qualified Mortgage regulation, go into effect on January 14. 

More People Will Buy Homes if Prices go Up - nice theory by Fed senior economists

According to the Mortgage News Daily, sale inventories have been slow to rebound from the Great Recession even though home prices have increased steadily since 2012. Two Federal Reserve Bank of San Francisco senior economists, William Hedberg and John Krainer theorize that prices are still not high enough to entice many sellers.  For some this is because the value of their home is still below the outstanding balance on their mortgage (also known as a negative amortization in mortgage parlance), meaning that sellers would have to bring cash to the closing.  For others it may be that their equity is not back to a level that motivates them to sell.

Economic theory suggests that all homes are for sale if the price is right, but at any point in time, the price may not be right. Sellers have their own ideas about what is "right" and must also consider that selling a house can be costly because of brokerage fees, and necessary or cosmetic changes to the house.  For these reasons and others the active listing a home is viewed by economists as a strong signal of an intent to sell and they measure the short-run supply of homes for sale, the inventory, by the listing numbers.

Good times or bad, there is always some level of inventory in the housing market.  Some owners sell to move up, others to downsize, other move for employment reasons, or to free up cash.  These are life-cycles motives not necessarily tied to the business cycle and produce a general level of churning in the market.  Nevertheless the authors say there is a distinct cyclical pattern to inventories which rise in good times and fall in bad times. 

Credit conditions, which are also cyclical, can account for some of this.  Risk premiums charged by lenders and their willingness to lend, tend to ease during good economic times, allowing more potential buyers to enter the market. But it is the level of house prices which is by far the variable that most influences the inventory of homes for sale.

Even though not all listed homes are vacant Census Bureau data on the numbers and price level of vacant homes have a long history of indicating the relationship between inflation-adjusted house prices and for-sale inventory.  As Figure 1 shows, inventories generally move with prices and changes in house prices have a causal effect on inventories.  The two series are tied together in a long-run relationship and the authors say this makes sense as rising house prices should encourage home owners to sell and thus inventories to rise.

Vacancies for sale over the years

Inventories do not instantly react to house price changes and other economics can disrupt the price/inventory relationship as is evident in the most recent time period in the figure above.  House prices have been recovering broadly since 2012 but inventories have been declining.  Only recently have they begun to rise.

The relationship between inventory and prices may have broken down for an extended period as the market rebounded in 2012 because of fallout from the housing boom and bust.   The boom saw an unprecedented rise in homeownership rates with younger households more willing to buy and eased lending allowing in less qualified borrows.  When those trends reversed the inventory shifted from homes for sale to homes for rent with the later rising steadily during the recession and the for-sale inventory dropping and only recently stabilizing.

The authors say the data does not go back far enough to show if this is a typical reaction but some Census Bureau data suggest it is unprecedented since the 1960s.  The phenomenon is widespread and cannot be accounted for solely by the surge in foreclosures.  The inventory of homes in foreclosure has recently been falling in most markets but the ratio of owner occupied and renter occupied units has remained down. Thus, either preference for home ownership has shifted or, more likely, credit constraints have affected household home purchase decisions.

The changes in for-sale and for-rent inventories are seen most dramatically in markets like Las Vegas, Phoenix and Miami where foreclosures were high and investors have been buying large numbers of the foreclosed properties.  In these market the total inventory of homes for rent is approaching that of homes for sale, a remarkable shift that has continued throughout the recovery.  But, in addition to the investor-effect the decline in homes for sale is very closely linked with the large downward shift in the home ownership rate in these markets. It is impossible to say though whether declining sales are pushing down home ownership rates or falling home ownership is pushing down sales, or both are interacting with each other in a complicated feedback process.

Tight credit conditions may be affecting both the ownership decisions of young buyers and the supply side of the market.  In theory, falling house prices alone may keep some home owners from selling. It may seem logical that decisions to sell should be based only on information about current and future market conditions and the authors point to research that shows home owners take more time to sell if home prices have fallen since the original purchase. That is, two similar home owners experiencing similar housing market conditions will behave differently if one of those home owners has an unrealized loss on his or her house.

Falling prices may hold down home sales for several reasons. An underwater home owner may be unwilling or unable to make up the difference between sale proceeds and mortgage balance and chose to delay selling.  Even if there is equity, it may be reduced enough that no cash is available for the down payment on another home.

Since early 2008, homes for sale and homes underwater have been negatively correlated.  Counties with a high share of underwater mortgages have tended to have smaller for-sale inventories.  The authors say that while this relationship is significant, its strength diminished as the recovery got under way. Underwater borrowers may have been locked into their houses in a way that impaired the normal functioning of the housing market. But that effect seems to be waning.

Another explanation for this breakdown is that home owners may be taking a longer view of the market.  In the housing cycle price changes are persistent, that is both price rises and price drops are likely to be followed by more of the same.  Home owners who can be flexible on timing a sale can take advantage of this persistence, waiting and gambling that increases will continue and they can sell at a higher price.

Figure 4 confirms on a county level the negative relationship between prices and inventories shown at the aggregate level in Figure 1. Where counties experienced relatively large price increases they also saw for-sale inventories decline.

The authors say it turns out that that variables such as recent house price appreciation and changes in employment are the most robust predictors of recent changes in housing inventory. Once these are accounted for other variables, such as changes in the for-rent inventory, the underwater share, or local price-rent ratios, do little to explain the inventory of houses for sale. "Thus, current home owners may be making a rational choice to postpone selling in the hope that prices will rise further. However, this behaviour tends to be short run. In the longer run, the link between the level of house prices and for-sale inventories is strong. If prices continue to rise, inventories for sale should eventually rise too."

Conclusion of the article:

History shows a long-run relationship between house prices and the number of houses available for sale. Thus, current inventories of homes for sale are low given more than a year of house price appreciation. County-level data suggest that many home owners are waiting for prices to rise further in their markets. Markets that have seen the strongest house price appreciation and job growth are the ones where for-sale inventories have declined the most.

Home Equity Buoyed by Rising Home Prices - Nice graphic by RealtyTrac

Mortgage News daily reported that the steady rise in home prices last year has pulled up an estimated 600,000 properties from the category of "deeply underwater" just since May.

Daren Blomquist, Vice President of Realty Trac said that the steadily rising home prices are lifting all boats in this housing market and should spill over into more inventory of home for sale in the coming months. " Home owners who already have ample equity are quickly building on that equity, while the 8.3 million homeowners on the fence with little or no equity are on track to regain enough equity to sell before 2015 if home prices continue to increase at the rate of 1.33 percent per month that they have since bottoming out in March 2012."

Blomquist said that homeowners in foreclosure with some equity have a better chance to avoid foreclosure without resorting to a short sale assuming they don't miss the opportunity to leverage that equity.  "Even homeowners deeply underwater have reason for hope, with about 150,000 each month rising past the 25 percent negative equity milestone - although it will certainly take years rather than months before most of those homeowners have enough equity to sell other than via short sale."

States with the highest percentage of homes with LTVs of 125 percent or higher included Nevada (46 percent), Illinois (40 percent), Florida (40 percent), Michigan (38 percent), Rhode Island (34 percent), and Ohio (31 percent).

Privocorp is a licensed mortgage processor in several states in the US.

Great news for everyone ! - More Homeowners Returning to Positive Equity

Thousands of homeowners are seeing improvements in their home equity as the housing market continues its recovery, however, they represent a dent in the surface of total underwater mortgage holders. Approximately 200,000 residential properties returned to a state of positive equity during the fourth quarter of 2012, according to data from CoreLogic.

This brings the total number of properties that moved from negative to positive equity in 2012 to 1.7 million, bringing the total of mortgaged residential properties with equity to 38.1 million.

Despite steady gains in home prices, the number of homeowners who have moved into positive territory is overshadowed by a vast number of those still underwater. Negative equity, often referred to as “underwater” or “upside down,” can occur because of a decline in value, an increase in mortgage debt or a combination of both.

Data show that 10.4 million, or 21.5% of all residential properties with a mortgage were still in negative equity at the end of the fourth quarter of 2012, down from 10.6 million (22%) in the third quarter.

Also of note is that out of the 38.1 million properties with positive equity, 11.3 million have less than 20% equity.

Underwriting constraints may make it more difficult for these borrowers to obtain new financing for their homes, according to CoreLogic. Even more disadvantaged are the 2.3 million properties that had less than 5% equity by the end of the fourth quarter 2012. These “near-negative equity” borrowers are at risk should home prices drop, writes CoreLogic. Under-equited mortgages accounted for 23.3% of all residential properties with a mortgage nationwide in the fourth quarter of 2012, the average amount of equity for all properties with a mortgage being 31%. “The scourge of negative equity continues to recede across the country. There is certainly more to do but with fewer borrowers underwater, the fundamentals underpinning the housing market will continue to strengthen,” said Anand Nallathambi, president and CEO of CoreLogic. “The trend toward more homeowners moving back into positive equity territory should continue in 2013.”

Of the 38.1 million residential properties with positive equity, 11.3 million have less than 20 percent equity. Borrowers with less than 20 percent equity, referred to as "under-equitied," may have a more difficult time obtaining new financing for their homes due to underwriting constraints. At the end of the fourth quarter, 2.3 million residential properties had less than 5 percent equity, referred to as near-negative equity. Properties that are near negative equity are at risk should home prices fall. Under-equitied mortgages accounted for 23.2 percent of all residential properties with a mortgage nationwide in the fourth quarter of 2012. The average amount of equity for all properties with a mortgage is 31 percent.

Mortgage bill faces tough road in Congress

As per USA Today ,A sharply divided Congress isn't likely to jump at President Barack Obama's challenge for quick passage of a mortgage refinancing bill that supporters say could help millions of homeowners save big each year and boost the economy.
Obama praised the legislation in his State of the Union speech last week, saying the proposal would help more homeowners with mortgages backed by Fannie Mae and Freddie Mac take advantage of low interest rates and refinance their loans.

Even with mortgage rates near a 50-year low, Obama said, too many families that have never missed a payment and want to refinance are being turned down.
"That's holding our entire economy back, and we need to fix it," the president said. "Right now, there's a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today's rates. Democrats and Republicans have supported it before."


HOUSING: States' foreclosure pace affects home Prices

The economy's slow recovery from the recession gives the idea urgency, Obama said. "Send me that bill," he told members of Congress listening to his speech in the House chamber.
The proposal is part of a push by Democrats and the White House to help homeowners take advantage of low interest rates as a way to help the housing market recover and to give the economy a shot in the arm.
While the bill could gain traction in the Democratic-controlled Senate, it faces a rough road in the GOP-run House, where many Republicans favor scaling back the government's role in the housing market as a way of aiding the economy. Similar versions of the measure died in the House and Senate's lame duck sessions last year.
"At the moment, it's an uphill battle," said Rep. Peter Welch, D-Vt., who plans to file the House version of the bill.


JOBS: Housing holds key to full job growth rebound

Welch said he will reach out to Republicans this year in hopes of building more support, but the bill's association with the government-controlled Fannie Mae and Freddie Mac, the federal housing agencies partly blamed for the collapse of the housing market, hurts its support base among GOP lawmakers.
"The American taxpayers have already sunk $190 billion dollars into the operations of Fannie and Freddie," said Rep. Randy Neugebauer, R-Tex., a member of the House Financial Services Committee. "It's time that we wind their operations down instead of using them as a piggy bank for failed programs that further delay the housing recovery.

 "In the Senate, Democrats Bob Menendez of New Jersey and Barbara Boxer of California have legislation to aid borrowers who are current on their loans backed by Fannie Mae and Freddie Mac, but who are not able to refinance because their home values have declined too much.

Nearly 12 million homeowners have Fannie Mae and Freddie Mac loans and stand to benefit refinancing, the two senators said. Many can't refinance at a lower rate because of red tape and high fees. The red tape has reduced competition among banks, so borrowers pay higher interest rates than they would if they were able to shop around more, according to the senators.

The bill also would reduce up-front fees that borrowers pay on refinances and eliminate appraisal costs for all borrowers. The measure seeks to expand the Obama administration's Home Affordable Refinancing Program, which saves an average homeowner about $2,500 per year, they said.

"Homeowners will have more money in their pockets, Fannie and Freddie will see fewer foreclosures, and the housing market and economy will continue building momentum," Boxer said.

Among the bill's supporters are the Mortgage Bankers Association, the National Association of Realtors and the National Association of Home Builders.

"It is another tool that can be out there to help stabilize the housing market and kick start the economy if consumers can, in fact, put another $100 bucks in their pockets every month," said John Hudson, government affairs chairman of the Association of Mortgage Professionals.

Similar proposals by Boxer and Menendez last year got bogged down in the Senate Banking, Housing and Urban Affairs Committee. Republican attempts to add amendments on other housing issues beyond refinancing led to a stalemate.

Twenty Senate Democrats are co-sponsors of this year's bill, but no Republicans have signed on."I support finding ways to smartly streamline the refinance process, but I'm not sure that eliminating all documentation requirements makes sense," said GOP Sen. Bob Corker of Tennessee, a committee member. "I also think we need to quickly move beyond short-term stimulus and start focusing on the structural issues in our housing finance system."Sen. Mike Crapo, the committee's top Republican, declined through a spokeswoman to comment on the bill.Welch's House bill also died during the last Congress. Welch accused Republicans of not wanting to give Obama an election-year boost by passing the mortgage refinance measure.

"Last year was even tougher because it was an election year," said Welch. "The Republican leadership wanted Obama to fail."