"Buyer demand is still intense, but it's as simple as 'one cannot buy what is not for sale'"
Pending home sale transactions decreased for the fourth month in a row in February, according to the National Association of Realtors. NAR’s pending home sales index (PHSI), a forward-looking indicator of home sales based on contract signings, fell 4.1% to 104.9 last month. Compared to a year ago, sales were down by 5.4%. “Pending transactions diminished in February mainly due to the low number of homes for sale,” said NAR chief economist Lawrence Yun. “Buyer demand is still intense, but it’s as simple as ‘one cannot buy what is not for sale. It is still an extremely competitive market, but fast-changing conditions regarding affordability are ahead,” he said. “Consequently, home sellers cannot simply bump up prices in the upcoming months but need to assess the changing market conditions to attract buyers.” According to Freddie Mac, the popular 30-year fixed mortgage rate jumped to 4.42% last week due to rising inflation and escalating geopolitical uncertainty. As a result of higher rates and sustained home price growth, mortgage payments are up by 28% year over year at the end of February. “The surge in home prices combined with rising mortgage rates can easily translate to another $200 to $300 in mortgage payments per month, which is a major strain for many families already on tight budgets,” Yun said. Yun expects mortgage rates to hover between 4.5% and 5% for the rest of the year and forecasts a 7% drop in home sales compared to 2021. “Home prices themselves are still on solid ground,” he said. “They may rise around 5% by year’s end, and we should see much softer gains in the second half of the year.”
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It says claim reflects the bank's "sordid history of racial bias"
A Black homeowner has filed a class-action lawsuit against Wells Fargo Bank and Wells Fargo Home Mortgage for their “discriminatory modern-day redlining practices.” The federal lawsuit was filed by Los Angeles-based litigation firm Ellis George Cipollone O’Brien Annaguey on behalf of Aaron Braxton, who alleges he was a victim of Wells Fargo’s discriminatory refinancing practices against Black borrowers. Braxton is a Black playwright and teacher who purchased his home in 2000 in the South Los Angeles area with a Wells Fargo home mortgage backed by the Federal Housing Administration. The complaint, filed in a federal court in California, accuses the bank of preventing Black homeowners like Braxton from refinancing by dragging out loan processing times, forcing him into an unsolicited debt-trap deferred payment program without his consent, denying his full request before finally granting him an above-market interest rate nearly a year and a half later. Such discriminatory practices, the litigation firm asserted, is a “modern form of redlining or refusal to insure mortgages in and near Black neighborhoods, delay and/or denial to refinance loans at lower interest rates for Black homeowners, and the high rate of rejection of credit applications from qualified Black Americans through automated algorithms and machine learning systems.” “Reflecting its sordid history of racial bias, Wells Fargo reached this disproportionate level purposefully,” said Dennis Ellis, lead counsel for the individual plaintiff and the proposed class. “It did so through its brazen use of multiple intentionally discriminatory algorithms and other race-driven lending practices, the disparate impact of which it either promoted or chose to ignore.” A recent Bloomberg investigation found that Wells Fargo approved only 47% of Black applicants for refinancing in 2021, compared with 79% of White borrowers. On average, other banks accepted 71% of Black applicants. The refinancing disparities have forced Black homeowners to pay more than non-Black homeowners, resulting in foreclosure in many cases, alleges the lawsuit. “The disproportionate number of Black applicants that were denied refinancing by Wells Fargo is staggering, especially when compared with those who were approved by other banks,” Ellis said. The counts against the home lender include the violation of the Equal Credit Opportunity Act, race discrimination in violation of the Fair Housing Act of 1968, and violation of the Unruh Civil Rights Act, among others. The number of serious delinquencies are no cause for concern, however
Black Knight has released its month-end mortgage performance for February, with particular focus on the sudden increase in national delinquency rates. The month saw the delinquency rate rise for the first time in nine months, driven by a 97,000 rise in early-stage delinquencies — but these are still well below pre-pandemic levels, it was revealed. Meanwhile, the total number of past-due loans went up 1.8% last month, with almost two million properties not in foreclosure but having over 30 days of past-due loans. Foreclosures saw a sizeable spike in January but dropped 24% in February. This is in line with how serious delinquencies fell by 72,000 as borrowers left forbearance plans and returned to making payments. Louisiana, Mississippi and Alabama are the top three states with seriously delinquent mortgages at over 90 days past-due. Foreclosure starts were at 25,000 last month, but this is still 25% below pre-pandemic levels. By the end of February, Black Knight noted a stark 39,000 increase in active foreclosures. Likewise, pre-payment activities dropped another 11% in February, almost achieving the lowest percentage in three years as rising rates continued to impact refinance volumes. Black Knight is expected to provide a more in-depth review by April 04. What do the numbers say about current housing supply and demand?
Economists have weighed in on the falling number of new home sales in February, which was made public by the Census Bureau on Wednesday. New home sales decreased 2% to a seasonally adjusted rate of 772,000 during the month. For Doug Duncan, chief economist at Fannie Mae, the figures are way below expectations. “The figure comes after a downward revision to January but an upward revision to December,” Duncan said. “While we expect the ongoing lack of existing homes for sale will still support demand for new home sales this year, given recent developments, the slowdown in sales over the past two months may end up reflecting a turning point going forward.” Homebuilders continue to face various challenges, from rising costs for materials to rising mortgage rates, as reflected in the data. Holden Lewis, mortgage expert at NerdWallet, also noted a new builder focus at the higher end of the market. “More than a quarter of a million homes were for sale and under construction at the end of February, an unusually high number. Shortages of garage doors, windows and doors contribute to the construction backlog. Builders are selling to the higher end of the market: 33% of new homes sold in February cost $500,000 or more, compared to 22% in February 2021.” Meanwhile, Danielle Halle, chief economist at Realtor.com, said the construction backlog pushed homebuilders to focus on pipeline management and on the completion of started homes instead. “Still, a historically higher share of new homes for sale remain in the ‘not yet started’ category, not exactly a good alternative for a buyer seeking a move-in ready home,” Halle said. “Looking ahead, households planning to move can expect higher costs whether they aim to own or rent.” But there is reason to be positive, with the supply of new homes rising 2.3% to 407,000 in February, which could ease some pressures of the major housing shortage in the US. However, Duncan warned aspiring homebuyers that they are now confronted with a 4.5% rise in mortgage rates. “With the rapid rise in mortgage rates, along with increased economic uncertainty given the Russian invasion of Ukraine and the beginning of a monetary policy tightening cycle, new home sales demand may now be softening,” Duncan said. “Recent survey data from the National Association of Home Builders also points to an expectation among homebuilders of softening sales in the latter half of the year.” “This suggests some slowing of demand, which should soften further if mortgage rates continue to rise,” Duncan added. “Even if rising mortgage rates stabilize, affordability constraints are now at a level that is likely increasingly weighing on sales, while further increases in financing costs for homebuilders may also modestly limit the conversion of new lots into completed units.” It was a short-lived increase last time around.
The prior week’s results ended the four-week streak of a decline in mortgage applications, but the usual trend continued for the week ending March 18. According to the Mortgage Bankers Association (MBA), mortgage applications dropped 8.1% on a seasonally adjusted basis. Mike Fratantoni, senior vice president and chief economist at the MBA, said the association had forecast mortgage rates to trend higher through the course of 2022. “Rates on 30-year conforming mortgages jumped by 23 basis points last week, the largest weekly increase since March 2020. The jump in rates comes as markets moved to price in a much faster pace of rate hikes, as well as expectations of fewer MBS purchases from the Federal Reserve,” Fratantoni said. “With mortgage rates now at 4.5%, compared to rates at or below 3% not that long ago, it is no surprise that refinance volume has dropped by more than 50% compared to this time last year.” Likewise, both refinance and purchase applications were also 14% and 1% lower than the previous week, respectively. Both percentages are significantly lower compared to the same time last year. The refinance share of mortgage activity also decreased to 44.8% from 48.4% the previous week. Meanwhile, the adjustable-rate mortgage share increased to 6.4% of total applications. Fratantoni said this is because first homebuyers continue to be challenged by the increase in house prices and even more rapid increases in mortgage rates. “Purchase application volume was down slightly for the week, with a larger drop in FHA and VA purchase volume, and a small decline in conventional purchase loans,” Fratantoni said. “Repeat homebuyers, who are more likely to use conventional loans, benefit from the gains in home equity realized on a sale which can be used to fuel their next purchase, even with rates moving higher.” A man and his brother-in-law indicted in multi-state scheme.
Fraudsters were indicted and sentenced within days of each other in California and Florida, US Department of Justice officials said. A ringleader and his brother-in-law have been indicted for their participation in a multi-state scheme involving mortgage fraud, credit repair and government loan fraud, US Department of Justice officials outlined. Steven Tetsuya Morizono, 59, of Mission Viejo, California, and Albert Lugene Lim, 53, of Laguna Niguel, California, were set for an arraignment before US Magistrate Judge Sam S. Sheldon Wednesday afternoon. Two others -- Heather Ann Campos, 43, and David Lewis Best Jr., 58, both of Houston – are fugitives with warrants remaining outstanding for their arrest, officials added. The indictment remains sealed to others charged but not as yet in custody, officials added. The 33-count indictment, returned March 16, alleges Morizono and Lim led the conspiracy. Using the alias Jeff, Morizono was the leader and namesake for the scheme purporting to do business as Jeff Funding, according to the charges. In reality, Jeff funding allegedly operated a multi-layered scheme to defraud mortgage lending businesses, banks, Small Business Administration and the Federal Trade Commission. According to the indictment, it’s alleged that co-conspirators recruited clients for credit repair using the company names of KMD Credit, KMD Capital and Jeff Funding, among others. They allegedly “cleaned” their clients’ credit histories by filing false identity theft reports with the FTC. After fraudulently inflating client credit worthiness, the co-conspirators fraudulently obtain credit cards, disaster loans and mortgages for themselves and their clients, according to the charges. They were allegedly able to accomplish this through false statements and fake documents. Morizono and his crew maintained control of the properties purchased in their clients’ names, according to the charges. The purpose, the indictment alleges, was to build a real estate portfolio worth millions of dollars and enrich themselves with rental income. If convicted, Morizono and Lim face up to 30 years in federal prison and a possible $1 million maximum fine. The Federal Housing Finance Agency – Office of Inspector General, US Postal Inspection Service, Housing and Urban Development conducted the investigation with the assistance of the Federal Trade Commission Criminal Investigation. Assistant US Attorneys Kate Suh and Jay Hileman are prosecuting the case. In a separate case, a disbarred attorney in Florida was sentenced for four years in prison for conspiring to commit bankruptcy fraud and defrauding clients of $1.3 million, according to the US Department of Justice. James Lee Clark, 61, was sentenced to 48 months in federal prison. According to court documents, from January 2010 through February 2017, Clark, who was a licensed attorney, conspired with his paralegal, Eric Liebman, to defraud mortgage creditors and guarantors holding notes on properties in foreclosure, officials said. Clark and Liebman falsely and fraudulently represented to distressed homeowners that they would negotiate with creditors and guarantors to prevent foreclosures in exchange for the homeowners’ execution of quitclaim or warranty deeds for the properties to an entity controlled by Liebman, according to Department of Justice officials. Clark and Liebman also convinced the homeowners to pay rent or agree to sell their houses, it was suggested. In order to continue collecting ill-gotten rents and/or profit from the property sales, Clark filed fraudulent bankruptcy petitions in the names of the homeowners to prevent the mortgage creditors from lawfully foreclosing and taking title to the properties, it was alleged. Additionally, from January 2012 to February 2017, Clark defrauded his clients out of approximately $1.3 million, it was stated. As part of his practice, Clark acted as a trustee for clients and held their money in various bank accounts, officials described. Department of Justice officials said that instead of using the funds for the purpose intended by his clients, Clark diverted the money into his law firm’s bank accounts, and used it for personal expenses, like gambling, travel, and automobiles. Liebman previously pleaded guilty to conspiracy to commit bankruptcy fraud, and was sentenced to 15 months’ imprisonment. The case was investigated by the Federal Housing Finance Agency – Office of Inspector General and the Federal Bureau of Investigation. The Office of the United States Trustee for the Middle District of Florida (Tampa Division) provided substantial investigative support. It was prosecuted by Special Assistant United States Attorney Chris Poor. How does the increase in mortgage payment fare relative to income?
The national median payment for mortgage applications rose 8.3% to $1,653 in February – a $127 leap from January, according to the Mortgage Bankers Association (MBA). MBA’s Purchase Applications Payment Index (PAPI) measures how new monthly mortgage payments change across time and how they fare relative to income. In spite of the improved income growth, Edward Seiler, associate vice president and executive director at the MBA, said it still wasn’t fast enough to keep pace with rising house prices and mortgage rates. “Low unemployment has spurred strong income growth in early 2022, but homebuyer affordability has decreased due to the quick rise in mortgage rates amid steep home-price growth,” Seiler said. “The 30-year fixed-rate mortgage spiked 73 basis points from December 2021 through February 2022. Together with increased loan application amounts, a mortgage applicant’s median principal and interest payment in February jumped $127 from January and $337 from one year ago.” The national PAPI increased 8.3% to 146.3 in February from 135.1 in January, meaning payments on new mortgages took up a larger share of a person’s income. The figures jumped 21.9% higher compared to the same period in 2021. Across the states, Idaho, Nevada and Arizona had the highest PAPI scores above 190, while Washington, Connecticut and Alaska had the lowest below 95. Moreover, borrowers looking to apply for lower-payment mortgages in the 25th percentile are now faced with a 9.8% increase to $1,094 from $996 in January. Seiler said rent prices also continued to move faster than mortgage payments, with the median asking rent at $1,207 by Q4 2021. The current mortgage payment to rent ratio increased 0.01 last December and 1.01 in December 2020. “Asking rents from first-quarter 2020 to fourth-quarter 2021 increased 16%, even outpacing the steep growth in mortgage application payments over that period,” Seiler said. “MBA’s mortgage payment to rent ratio is now at roughly the same level it was at the start of the COVID-19 pandemic in March 2020.” Mortgage strategists offer an alternative proposition.
Less than 5% of homeowners will be able to save money by refinancing a mortgage as borrowing rates soar to their highest level since 2019, according to research from Brean Capital. Bloomberg reported that this figure is likely to be even lower when homeowners with low loan balances are removed from the picture. In fact, refinance applications dropped 14% lower than the previous week, plummeting almost 60% since August as mortgage rates increased, the Mortgage Bankers Association revealed on Wednesday. This prevents homeowners from reinvesting from the lack of a higher yield. “So many people refinanced during the past two years that most homeowners no longer have incentive to do so,” Christopher Maloney, mortgage strategist at BOK Financial, told Bloomberg. “At this point almost the entire universe of conventional 30-year mortgages are out-of-the-money.” However, some investors believe the worst has come. One of them, Walt Schmidt, mortgage strategist at FHN Financial, told Bloomberg that the gap between yields on coupon mortgages and five- and 10-year treasuries is at its widest since the pandemic hit, making it “relatively cheap.” “If the Fed ends up hiking by a lot more than is priced now, mortgages will get cheaper,” Schmidt told Bloomberg. “But there are enough investors that think that’s not going to happen.” Instead of the usual refinancing, more consumers are turning to the option of cash-out transactions, where borrowers get a new mortgage worth more than the previous mortgage balance, and the difference is paid in cash. “People have an economic incentive to extract equity from their homes,” Scott Buchta, head of fixed income strategy at Brean Capital, told Bloomberg. “We expect this activity to continue, although we may see a shift from cash-out refis on the first lien to equity extraction via home equity loans or lines of credit if it makes more economic sense for the borrower to do so.” Three factors have prevented many buyers from making a deal
Existing-home sales have adopted an up and down pattern since the start of the year and continued in that trend in February. The National Association of Realtors reported that total existing-home sales fell 7.2% from January to an annualized rate of 6.02 million in February. Sales activity was also down 2.4% year over year to 6.17 million last month. While it is tempting to blame the decline on the recent run-up in mortgage rates, Mortgage Bankers Association chief economist Mike Fratantoni said that the February sales figures were likely the result of two persistent housing challenges. “Given that last month’s sales numbers represent closings, the decline in sales came at a time earlier this year when rates were lower. The more likely reasons for the drop in sales were the ongoing lack of housing inventory and the resulting increase in home values that priced some buyers out of the market,” Fratantoni said. “From a lending perspective, while the number of sales declined somewhat, with 15% home-price growth, the dollar volume of sales and purchase originations have increased over the past year.” NAR chief economist Lawrence Yun noted that rising rates and escalating prices have prevented many prospective homebuyers from making a purchase. “Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases,” Yun said. “Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate. Monthly payments have risen by 28% from one year ago – which interestingly is not a part of the consumer price index – and the market remains swift with multiple offers still being recorded on most properties.” According to Freddie Mac’s latest survey, the 30-year mortgage rate jumped to its highest level in three years, averaging 4.16% last week. The median existing-home price has also skyrocketed 15% annually to $357,300 in February, marking the 120th straight month of year-over-year gains. “The sharp jump in mortgage rates and increasing inflation is taking a heavy toll on consumers’ savings,” he said. “However, I expect the pace of price appreciation to slow as demand cools and as supply improves somewhat due to more home construction.” Total housing inventory increased 2.4% from January to 870,000 units in February, with unsold inventory sitting at a 1.7-month supply. About 84% of homes sold last month were on the market for less than a month. On the bright side, Fratantoni highlighted the 27% month-over-month increase in the share of sales going to first-time homebuyers, who were responsible for 29% of sales in February. “The strength of the 2022 housing market is dependent on the wave of millennial homebuyers reaching peak first-time homebuyer age and finding a way into this booming housing market. We are hopeful that the small increase in inventory and a slight slowing of home price growth seen in February will continue through this spring buying season,” Fratantoni said. How does mortgage refinance affect your credit score?
Mortgage refinance affects your credit score because it will take a hit, however temporarily, each time you complete a credit application. New debt amount, credit inquiry, and length of credit history each contribute to that hit. The following is a breakdown of how mortgage refinance affects your credit score: Credit inquiry. When a lender conducts a hard credit check after you submitted a credit application for a refinanced home loan (or a credit card), it will lower your credit score temporarily. Of your credit score, hard credit inquiries comprise 10%. If you complete numerous applications within a shorter time period, that signals to credit bureaus that you are shopping for the best rates. Completing fewer applications several months apart, however, may be counted as separate inquiries, each of which could cause a brief dip in your credit score. Average age of your credit history matters. Since mortgage refinance can appear on your credit report as a new loan, it will drop the average age of credit history. Of your total credit score, the age of your credit history comprises 15%. Shorter credit history signals to potential lenders and creditors that you are inexperienced in managing credit, even though making payments promptly and accumulating new credit is good for your credit score in the long term. It is not the biggest factor, but it does affect your total score. How is your credit score calculated? The majority of mortgage lenders use the Fair Isaac Corporation, or FICO, credit score to determine credit risk. You can predict what may happen if you refinance if you know your FICO score. According to FICO, your score is calculated in the following way: 35% – payment history 30% – amounts owed 15% – length of credit history 10% – new credit 10% – credit mix Both the length of your credit history as well as your credit will be impacted when you refinance. If you opt for a cash-out refinance, it could also affect the amount of debt you owe. The financial benefits of refinancing outweigh the negatives—although it is important to note you will take a temporary credit hit. Being hit by hard credit inquiry To ensure you qualify for a given product, a lender will conduct a hard credit inquiry any time you apply for a mortgage or any credit. Your credit score will likely be impacted temporarily after the inquiry is recorded on your credit report. Of your FICO score, new credit comprises 10%. Multiple hard inquiries could have a broader effect but one inquiry will likely drop your credit score by five points. How to protect your credit score Here are some ways to protect your credit score when refinancing: Timing. Homeowners usually think about refinancing to lower their monthly payments when interest rates dip. Refinancing makes the most sense, mortgage experts agree, if you can lower your interest rate by at least 0.75%. Because you will pay closing costs when refinancing, you might consider if you will be in the house long enough to recoup that expense. If you save $200 per month by refinancing, for example, but pay $4,000 in closing costs, that would take you 20 months to break even. Credit check yourself. This is a good thing to do before applying to see if you would qualify for a new loan. It should be noted: soft inquiries like this do not affect your credit. Space out refinancing. FICO scores take into account inquiries from the past 12 months only; hard inquiries remain on your credit reports for up to two years. That means you might want to wait at least a year before refinancing again if you have done so recently. Doing so means new credit inquiries will not accumulate with the first refinancing. Do not open more credit accounts. It is a good idea to stop using credit until you close on refinancing. In the meantime, you can keep your credit strong by tackling your high-interest debts and paying your bills promptly. Compare offers. Shop. Submit applications with a few different lenders and compare their offers. It is always a great strategy for saving your money. The key to shopping around like that is to submit multiple inquiries within a specific time period to avoid negatively impacting your score. Tips on how to prepare for refinancing your home The following are good things to keep in mind when getting ready for a refinance: Check your credit history. You can do this through either of the major credit bureaus or for free through your credit card issuer or your bank. Clean up errors. There is a chance that your credit report is lower than it ought to be due to derogatory or false marks. You can dispute these by contacting a credit bureau. Get pre-qualified. Source the best offer for you by shopping around with multiple lenders. Organize your paperwork. Prior to finishing your application, prepare your financial documents and tax forms. Complete application. This step can be completed after you have decided on a lender who offers the best repayment terms and interest rate for you. Keep paying your current loan. The process of repaying your current loan is incomplete until your new refinancing lender tells you so. |
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