HUD Secretary Castro Repeats Mantra Of “Credit Is Too Tight” (3/1 ARM Rates HIGHER than 30Y Fixed-rates)

HUD Secretary Julian Castro spoke at the MBA conference in Las Vegas and make several strange statements.

Oct. 20 (Bloomberg) -By Felice Maranz, Christopher Maloney and Clea Benson- “It’s time to stop being apologetic about helping responsible folks buy their first home,” HUD Secretary Julian Castro says in remarks prepared for MBA conf.
• Says has seen “a lot of frustration” from lenders about FHA business post-crisis; lenders have been reluctant to lend because of “regulatory uncertainty”
• “You want to be able to manage your risk better — and so does FHA”
• Taking action including:
• Releasing “Blueprint for Access”
• Overhauling “Single Family Housing Policy Handbook”; 1st section will be effective next June; sees added sections largely completed by next yr
• Announced ‘‘Supplemental Performance Metric’’ that compares lender’s loan performance vs those also doing business within same credit score range
• Will minimize ‘‘Credit Watch Termination’’ risk for lenders who loan to ‘‘worthy borrowers with lower credit scores when their peers do not”
• Offering “new way to look at loan defects,” draft of “Loan Defect Taxonomy”
• In everyone’s interest to help by “expanding access to credit”
• “It’s too hard” to get a home loan; cites Urban Institute study that 1.2m loans a year missed “because credit is too tight”

First, I am not aware anyone being apologetic about helping responsible households buy their first home. At long as it is SUSTAINABLE homeownership. Clearly, with homeownership peaking in 2004-2006 and forecloseure filings starting to rise rapidly in 2007-2008, homeownership was NOT sustainable. And the decline in real median household income since 2007 is resulting in no recovery in the homeownership rate. If fact, it continues to fall.


Second, it is NOT too hard to get a home loan, Mr. Castro. It is that wages and incomes have not recovered, so DTI ratios are a problem.


Third, 3/1 ARM rates are now higher than the 30Y fixed-rate. That cuts off 3/1 ARMS from being a loan type for borrowers trying to get a mortgage for the lowest possible rate.

Lastly, it is NOT in everyone’s best interest to expand access to credit. Remember the housing and credit bubble that exploded, Mr. Castro?



China Blues: China’s Home Sales and Home Prices Declining While Chinese Millionaires Buy Homes In Los Angeles

Yesterday, I wrote about the influx of Chinese millionaires into Los Angeles, specifically Arcadia and how Los Angeles’ housing bubble resembles that of London England.


Now we can see what if happening in China that is helping prod the Chinese to move to Los Angeles. According to the Wall Street Journal, China’s housing bubble is popping. Both home sales are house prices are declining.


Of course, Realtors will be thrilled about selling million dollar homes in Los Angeles, but people that are renting our moving into Los Angeles may be less thrilled. Particularly with home prices rising faster than middle class incomes.


China blues indeed.


Chinese millionaires can always stay in Beijing and visit Wonderland instead of coming to Los Angeles and visiting Disneyland.


At least in Los Angeles, Harrison Ford can find a good noodle bar.

noodle bar

UK Real Wages In Longest Sustained Decline Since 1862, But Mortgage Approvals Rise (Comparison to USA)

According to The Financial Times, the UK is in the throws of the longest sustained decline in real wages since 1862.


However, UK mortgage approvals have been rising since 2008/2009. Contrast that with US mortgage purchase applications which remain dormant since 2010.


Despite The Federal Reserve’s massive liquidity push, real median household income and average wage growth remain stagnant.


In terms of home price growth, London looks like Los Angeles. Both are being “bubbled” by foreign investors.


Of course, Russian and Asian investors are bidding up London home prices while Chinese millionaires doing the same thing for Los Angeles. Like in Arcadia.


If Los Angeles is in a housing bubble, then there might be “Big Trouble in Little China.”


Gone Girl: Yellen Worries That The 90% Of Americans Don’t Own Enough Assets (Low Income, Zero Interest Rates and a Regulatory Wall Hurts)

According to the Fed’s triennial Survey of Consumer Finances, the top 10% of U.S. families are doing just fine, and those in the bottom fifth are essentially being kept afloat by transfer payments; but the inflation-adjusted median family income has shrunk by one-eighth since 2004. Quite simply, middle-class incomes are being gutted.


Citing that same survey, Ms. Yellen expressed concern about “lower-income families without assets” that “can end up, very suddenly, off the road.” She therefore advised families to “take the small steps that over time can lead to the accumulation of considerable assets.” She did not, however, explain how they were to accumulate these assets, in light of falling incomes and zero interest rates.

Not to mention rising home prices when many households can’t qualify for a mortgage due to lower/stagnant incomes. Low interest rates are NOT helping millions of Americans; rather, it is preventing them from earning interest.


And declining real median net worth.


Fed Chair Yellen sounds woefully out of touch with the lower and middle class plight. And starting a new firm leaves the budding entrepreneur facing a wall of regulations and healthcare requirements. Yellen sounds “gone.”

Perhaps “Gone Girl” star Rosamund Pike can reprise her role in “Gone Girl: The Janet Yellen Story.”


And The Rockford Files Stuart Margolin (aka, Angel Martin) as Ben Bernanke.



FHFA Said to Plan Steps to Ease Lending to Riskier Borrowers (And Why It Won’t Work!)

Apparently, FHFA Director Mel Watt is taking steps to ease lending to riskier borrowers by agreeing on what is a flawed mortgage up front and other actions to stimulate mortgage lending to riskier borrowers.

Oct. 17 (Bloomberg) -By Clea Benson- Fannie Mae, Freddie Mac and their regulator are nearing agreement with mortgage issuers on efforts to boost lending and ease banks’ concerns that they will get stuck with bad loans when borrowers default.

The initiatives include a consensus on when defaulted loans are so flawed that lenders must buy them back from the two mortgage-finance companies, a key sticking point in efforts to unlock credit, according to three people familiar with the discussions. The steps are part of a broader push to increase lending after banks had to repurchase billions of dollars of mortgages that were issued during the housing bubble.

The banks’ reticence has kept first-time homebuyers and others with weak credit out of the real-estate market and created a drag on the fragile housing recovery.

The problems isn’t bank litigation and loan repurchase facing first-time homebuyers. It is low incomes relative to high house prices better known as the “DTI Wall.” Here is a chart of unemployment rates for blacks and American youth (both stand at 11%).


It is much more difficult for riskier borrowers to meet debt-to-income (DTI) ratio requirements with such high unemployment rates.

During the 1970s the maximum Debt-to-income (DTI) ratio was 25% for a mortgage. That is, if your mortgage, taxes, and insurance were less than 25% of your income, it was assumed you could afford the payment. It rose to a front-end ratio was 28% and the back-end ratio (including ALL debt) was 36%. By 2004, those ratios has increased again to 33% and 38%, respectively. Currently, the FHA’s cap on mortgage debt to income is 31% and the back-end ratio is 43%.

So, as you can see, maximum DTI ratios have exhibited “bracket creep”. In other words, underwriting standards have softened over time. Unfortunately, real median household income and wage growth are lower than in 2007. And house prices are rising again (and becoming more unaffordable despite near record low mortgage rates.


With lower real incomes and lower wage growth, will FHFA push Fannie Mae and Freddie Mac to increase DTI to 50%? This is greater than the 43% rule from the Consumer Financial Protection Bureau (CFPB). Will FHFA and CFPB waive compliance in order to increase lending activity?

The problems facing FHFA Director Mel Watt, Fannie Mae, Freddie Mac, mortgage lenders and US households is the rotten labor market recovery after 2007. True, unemployment is back to near-normal, but “ability to pay” is not. Despite low mortgage rates.


Is FHFA trying to push the US into another Austrian credit bubble? The answer is yes, but how far will they be willing to go to stimulate the mortgage market? And if the market blows up (again), will the DOJ and SEC resist suing lenders?


4 Horsemen of the Bond Market: Rates Below 4% Leave U.S. Refinancing Banker Sleepless (Mortgage Rates More Volatile Than 10Y Treasury Benchmark)

Like the 4 Horsemen of the Apocalypse, the global economy is faced with 1) slow US recovery from The Great Recession, 2) Ebola, 3) Putin and Russia and 4) a stagnant Europe. All these factors are helping push Treasury and mortgage rates down … and increasing uncertainty.


Bloomberg – Prashant Gopal -The drop in mortgage rates below 4 percent has cut into Debra Shultz’s sleep. The New York City banker is busier than she’s been in months, working with three dozen homeowners eager to lower their payments.

Shultz helped a Greenwich Village homeowner on Wednesday lock in a 3.63 percent interest rate for a 30-year fixed jumbo mortgage of more than $900,000. An hour later, the rate jumped to 3.75 percent. One lender changed its rate sheet six times that day.

“It just went crazy,” said Shultz, a senior vice president of mortgage lending at Guaranteed Rate in New York. “I sent out a blast e-mail to 1,600 clients and had 30 responses right away.”

Mortgage rates are following a slide in 10-year Treasury yields as weaker-than-expected economic data from Germany to China combine with concern about the Ebola virus, sparking demand for safe investments. The average rate for a 30-year fixed mortgage dropped to 3.97 percent, the lowest since June 2013, Freddie Mac said yesterday. Borrowing costs spiked in September before dropping for the last four weeks, giving owners a new opportunity to refinance.

“This is bizarro world,” said Anthony B. Sanders, an economics professor at George Mason University in Fairfax, Virginia. “Usually we associate lower interest rates with lower volatility. Now you’re seeing the opposite.”

Yup, the Bankrate 30Y mortgage continues to fall with the US Treasury 10 year yield, yet the Bankrate 10 year rate is showing considerably more volatility.


And here is the interest rate volatility cube in 3D.


Yes, it is a Bizarro World for bonds and mortgages with head Bizarro Janet Yellen calling the balls and strikes.


Renter’s Life: Housing Starts Rise 6.3% In September To 1993 Levels – Single Unit Starts Up 1.1%, 5+ Units Starts Up 18.5%

Housing starts rose 6.3% in September … to 1993 levels.


Single unit starts only rose 1.1% while 5+ unit (multifamily) starts were up 18.46%.

Here is why. The US is a renter’s world for now thanks to declining/stagnant household income and wages (insufficient debt-to-income or DTI) and a declining work force.


If you are an optimist, 1 unit housing starts have been rising since 2009 while average wage growth is 40% lower and mortgage purchase applications are deader than a dodo.


5+ unit (multifamily) starts are rising during the period of declining/stagnant income. As a result, the homeownership rate continues to falls.


So there you have it. Apartment starts are booming while 1 unit starts remain back at 1982 levels.

It’s a renter’s life.