Tandy On Real Estate

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Smaller Homes are on the Rise

The average square footage of homes has been on the rise for a decade. We are seeing a shift in this as builders begin to cater more to the first-time homebuyer market. The U.S. Census Bureau reports show that the average new home size is now decreasing. According to Rob Chrisman, the average square footage has decreased slightly due the rise in first-time homebuyers and empty nesters and the rise in townhome and condo popularity.

Lew Sichelman of The Housing Scene describes this new trend in “The Shrinking House”. The average size of all completed single-family dwellings in 2018 was 2,588 square feet. But that figure is on a downward trajectory. In 2017, the average size was 2,631 square feet. Lew reports that builders are still building monster houses too. Last year, three out of every ten new houses were at least 3,000 square feet, and of those, 10 percent were at least 4,000 square feet, according to the U.S. Census Bureau.

This decrease in the average home size, as is all real estate, seems to be cyclical the National Association of Homes Builders (NAHB) Chief Economist Robert Dietz explains. “Typical new-home sizes fall prior to and during a recession, as homebuyers tighten budgets, and then rise as high-end buyers … return to the market in relatively greater proportions.”

For ten years we have reduced our construction of single-family and multifamily homes, but our population growth continues. The Nation’s Homebuilding Forecast panel at the National Association of Real Estate Editors Conference, explained that “this has been a crazy experiment. Builders are just now getting back into full swing years after the financial crisis.” There are intense constraints, including labor shortages, rigorous regulations, and more expensive building materials, placed on the builder market. With these pressures, builders are trying to navigate the waters to build what will sell profitably. The National Association of Home Builders (NAHB) believes their members will be adding more entry-level homes to their inventory, and potentially cutting square footage to reduce costs, which is indicative of the most recent reports.

Millennials are getting priced out of the market, yet prefer amenity-rich homes

There is a big demand for housing, a low supply of inventory, and the end result is artificially increased home prices due to the scarcity. This demand is causing starter-home buyers and lower-income families to be priced out of the market. The solution is to build more, build smaller, and build cheaper with fewer amenities. This is not exactly what the millennial buyer prefers over other generations as they continue to seek out more lifestyle features like whirlpool tubs and specialty rooms (exercise, media and game rooms).

I grew up in a three-bedroom, one-bath home with formica countertops, shag carpeting and wood paneling. No granite counters, tile floors, twelve-foot ceilings, or storage. And, I did not feel I missed out. We may need to bring this type of home product back or a reimagined version of it to create affordable homes for the first-time home buyer. A starter is just that, a start.

Certainly, the housing market will continue the trend to build smaller. The evidence is already pointing to this happening. We will also need to utilize land more efficiently opting for more multifamily development which we here in Austin, TX are certainly seeing.

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SOURCES:

Mortgage News Daily – http://www.mortgagenewsdaily.com/channels/pipelinepress/08132019-mortgage-rates.aspx

RobChrisman.com – https://www.robchrisman.com/aug-13-ops-cap-mkts-ae-lo-jobs-broker-dpa-products-aug-events-mortgage-rates-slow-to-drop-why/

UExpress – https://www.uexpress.com/housing-scene/2019/8/9/the-slowly-shrinking-house

The National Association of Home Builders – https://www.nahb.org/

The National Associations of Home Builders – http://eyeonhousing.org/2019/08/homebuyer-preferences-millennials-vs-other-generations/

Worldometers – https://www.worldometers.info/world-population/

The U.S. Labor Shortage, Explained

Did you know that more Americans are quitting their jobs than ever? Here is a snapshot of the U.S. labor shortage featured on Vox.com:

  • For a record 16 straight months, the number of open jobs has been higher than the number of people looking for work.
  • The US economy had 7.4 million job openings in June, but only 6 million people were looking for work, according to data released by the US Department of Labor.
  • Employers have been complaining about a shortage of skilled workers in recent years, particularly workers with advanced degrees in STEM (science, technology, engineering, and math) fields. 
  • Employers are having a harder time filling blue-collar positions than professional positions that require a college education.
  • The hardest-to-find workers are no longer computer engineers. They are home health care aides, restaurant workers, and hotel staff. 
  • In April, 3.5 million workers quit their jobs — the highest number ever recorded in a single month.

Here is the full story.

The U.S. Labor Shortage, Explained
Featured in Vox.com
By Alexia Fernández Campbell August 12,2019

The US economy doesn’t have enough workers.

For a record 16 straight months, the number of open jobs has been higher than the number of people looking for work. The US economy had 7.4 million job openings in June, but only 6 million people were looking for work, according to data released by the US Department of Labor.

This is not normal. Ever since Labor began tracking job turnover two decades ago, there have always been more people looking for work than jobs available. That changed for the first time in January 2018. Just look at the chart below.

Employers have been complaining about a shortage of skilled workers in recent years, particularly workers with advanced degrees in STEM (science, technology, engineering, and math) fields. Nearly every industry now has a labor shortage, but here’s the twist: Employers are having a harder time filling blue-collar positions than professional positions that require a college education.

The hardest-to-find workers are no longer computer engineers. They are home health care aides, restaurant workers, and hotel staff. The shift is happening because more and more Americans are going to college and taking professional jobs, while working-class baby boomers are retiring en masse.

This means that for once, low-skilled workers have the most leverage in the current labor market.

One way to measure that leverage is to see how many workers are quitting their jobs. When more people are quitting than getting fired, that’s a sign of a healthy labor market. It means people are finding better-paying jobs, or feel confident that they will. And, sure enough, a record number of workers are quitting.

In April, 3.5 million workers quit their jobs — the highest number ever recorded in a single month (check out the red line in the graph below). Meanwhile, layoffs and firings remain at record-low levels.

Who are the workers quitting at the highest rates? Restaurant and food catering workers, followed by those in the hotel and tourism industry. Both industries rely on a large number of low-paid workers. The fact that so many are quitting suggests that workers are fed up with crappy jobs.

It “indicates that workers are feeling more confident in their jobs prospects to quit in search of better opportunities,” writes economist Elise Gould of the Economic Policy Institute.

While a labor shortage seems like something for President Donald Trump to brag about, there is one troubling sign: The total number of job openings is decreasing. That means economic growth could continue to slow. That’s bad news for the president.

But in the meantime, there’s no better time for working-class Americans to demand better wages, benefits, schedules, and work conditions. It also means immigration reform is more urgent than ever. In order to fill all the open jobs and keep the economy growing, Congress will need to allow more low-skilled immigrants to work — legally.

Employers need to raise wages by a lot

The numbers are pretty clear about what comes next. If 7.4 million jobs are open and only 6 million people are looking for work, then employers need to find a lot more workers. They need to encourage more Americans to join the workforce.

Right now there are about 1.5 million people who are considered “marginally attached” to the US labor force and who are not counted as job seekers. They are people who would like to work but don’t need to, or can’t work because of other responsibilities. Their most common reasons for not working are because they’re enrolled in school or taking care of family members, according to the Labor Department.

Economists agree that employers need to do more to entice workers to join the labor market. They need to sweeten the deal.

“Companies looking to attract enough blue-collar workers will have to continue increasing wages and, as a result, possibly experience diminished profits,” wrote Gad Levanon, chief economist for North America at the Conference Board, a global economic research organization that has studied the recent US labor shortage.

Slow income growth has been the most persistent problem affecting the US economy in its recovery from the Great Recession. Wages have barely kept up with the cost of living, even as the unemployment rate dropped and the economy expanded.

With such a tight labor market and rising productivity, workers should expect much bigger pay raises than they’re getting.

Private sector workers (excluding farmworkers) got a measly 8-cent average hourly raise in July, adding up to an average pay of $27.98 an hour. Workers’ wages only grew about 1.6 percent in the past year, after adjusting for inflation.

While that’s faster than wages have been growing since the recession started in 2007, it’s still a pathetic amount compared to the sky-high payouts corporate CEOs are getting.

But raising wages will only do so much to ease the labor shortage. Businesses will need to hire more foreign workers too.

The US economy needs more low-skilled immigrants

The new labor market data shows a lot of unfilled jobs that require college degrees — about 1 million in the professional business service sector. But there are even more open jobs that don’t require that much education.

These are the kinds of jobs that low-skilled immigrants, often from Latin America, have long helped fill. But Trump’s restrictions on immigration threaten to make the labor shortage worse. Since taking office, his administration has tried to scale back nearly every avenue of legal immigration, ignoring the high demand for unskilled immigrant workers, even though he employs undocumented workers at his own golf clubs.

Trump’s most recent immigration proposal would revamp the current legal immigration system, which currently prioritizes immigrants with family ties to the US. The new green card system would instead favor immigrants with high levels of education, English-language fluency, and professional skills. Most of the green cards would go to immigrants under a point system that ranks applicants based on certain criteria, such as professional skills, education level, age, and English fluency. So Trump would like to make it even harder for unskilled immigrants to come to the US.

In 2017, the Wall Street Journal’s editorial board warned Trump that his restrictions on immigration could hurt the economy.

“If President Trump wants employers to produce and build more in America, the US will need to improve education and skills in manufacturing and IT. But the economy will also need more foreign workers, and better guest worker programs to bring them in legally,” the publication said in March 2017.

Darrell West, a Brookings expert on technology and public policy, pointed out in 2013 that the US economy would suffer if Congress didn’t overhaul the immigration system:

America’s immigration system is not designed for today’s economy, and remains largely unchanged since 1965. In fact, of the approximately one million green cards given out by the US in 2011, around 139,000 (or 13 percent) were given out for economic reasons, a number far too small to meet the needs of the world’s largest economy.

Providing more work visas for skilled and unskilled immigrants seems like an obvious solution to ease the labor shortage. But it’s also the solution Trump seems least inclined to take.

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SOURCES:

Vox.com – https://www.vox.com/2019/8/12/20801941/us-labor-shortage-workers-quit

BLS.gov – https://www.bls.gov/news.release/jolts.nr0.htm

The Conference Board – https://www.conference-board.org/press/pressdetail.cfm?pressid=7622

Pew Research – http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/

NPR – https://www.npr.org/2018/10/26/660489729/will-headwinds-appear-in-u-s-economic-growth-benchmark

Vox.com – https://www.vox.com/policy-and-politics/2018/8/16/17693198/ceo-pay-gap-income-inequality

The Wall Street Journal – https://www.wsj.com/articles/americas-growing-labor-shortage-1490829265?mg=prod/accounts-wsj

Governance Studies at Brookings – https://www.brookings.edu/wp-content/uploads/2016/06/West_Paradox-of-Worker-Shortages.pdf

The Impact of Investors on Single-Family Homes

Last year the number of home sales bought by investors was at a two-decade high. Interestingly, this growth was not from large institutional investors according to CoreLogic, but by small investors getting into the real estate investment game purchasing starter homes.

We are in a new era of investors being a bigger player in the US housing market. As we enter 121st month of an expansion, it’s reasonable to project we may be nearing the end before we have some type of economic correction. Normally investors begin to pull back their activity but instead, we see they are buying 1 in 5 starter homes.

Here is an investor snapshot provided by CoreLogic:

  • By the end of 2018, the investment rate in the U.S. housing market reached 11.3% – the highest rate since CoreLogic started tracking these data in 1999. 
  • Smaller investors are responsible for increasing investor homebuying activity. This is in sharp contrast to the rise in large institutional investors in the years following the recession. These so-called “mom-and-pop” investors grew from 48% of all investor-purchased homes in 2013 to more than 60% in 2018.
  • Large investors – those who purchased more than 101 homes – nearly doubled their activity between 2000 and 2013 but have pulled back since the foreclosure crisis and now sit at 15.8% of purchases. 
  • Real estate investment heads east. Investor homebuying rates vary sharply across the country, with the highest rates east of the Mississippi River and the lowest rates to its west. Each of the top 10 metros with the highest investor purchase rates is in the eastern half of the country, with Detroit, Philadelphia and Memphis, Tennessee leading the pack at 27%, 23.3%, and 19.7%, respectively. Just two of the top 10 are western markets, with Des Moines, Iowa and Oklahoma City, Oklahoma at 18.7% and 17.2%, respectively.
  • The five markets with the least amount of investor activity are all west of the Rockies, including Ventura, California, Boise, Idaho, Oakland, California, San Jose, California and Sacramento, California at 4.8%, 4.8%, 5.1%, 5.2% and 5.3%, respectively.
  • Not surprisingly, Investors are attracted to high-rent markets.
  • Markets that witnessed an increase in the share of active investors also experienced a similar increase in how fast homes were selling. Does this mean investors snapped up supply that would have otherwise been bought by owner-occupiers? Maybe, but the evidence isn’t conclusive because there’s a possible chicken-or-egg relationship between the two. While an uptick in investors into a market perhaps increases competition and lowers supply relative to demand, the opposite is also possible: markets with tightening supply could draw investors as they perceive markets with a dwindling supply to be safer bets than those with more plentiful supply.

As investors continue to purchase more properties, home prices increase. In May, the median price of existing homes was $277,700, up 4.8% from a year earlier, the National Associations of Realtors reported. For single-family homes, the median price was $280,200, up 4.6%.

NPR recently reported, “The pool of smaller, affordable starter houses is low. And increasingly, first-time homebuyers are competing with investors who are buying up these homes. Investors tend to buy cheap homes with the goal of renovating them and putting them back on the market at a higher price, or renting them out.”

At the National Association of Real Estate Editors Conference in Austin, TX, Ralph McLaughlin of CoreLogic explained that Investors are targeting the starter homes. CoreLogic cannot determine from the analysis they did if Investors are in fact displacing first-time homebuyers as many news outlets are reporting. Investors may be taking the homes that the first-time homebuyer wouldn’t actually buy. They may require too much work. The only time there would be competition with first-time homebuyers would be on a turnkey home, and for those that are buying and holding the home. If they are putting a property in circulation for rental, that is still putting a home in the supply and increasing the supply, which is a good thing for the housing market. Detroit and Philadelphia, Baltimore and Memphis have seen the biggest increase in real estate investment.

Do you see your home as an investment?

For most of my career, I have said that a home purchase is the largest investment you will make in your life, and here in Texas, for the most part this remains true as we have a relatively stable market with continuing, reasonable home value increases. MoneyUnder30.com gives us 7 reasons we should consider our homes as their primary function, shelter, versus an investment. Here are their reasons why a home is not an investment:

  1. It’s not an investment just because it appreciates. A true investment requires more than the prospect of an increase in value.
  2. A house has a more primary purpose – shelter. With a true investment you can generally control the timing of your sell, but with a home as an investment you have many factors to consider and often have no control over your timing of buying and selling. Life happens.
  3. A house cannot be an investment if you never plan to sell it. The most effective and efficient way is to sell the house after it has experienced a significant amount of price appreciation. However, selling a house is highly disruptive because it means you have to move. More significantly, when you do sell, you will most likely have to use the equity from the sale to purchase the next house. After all, you will be moving from one residence to another. This means that in a real way, home equity is trapped equity.
  4. Thinking of your house as an investment can lead to equity stripping. Many borrow money out their homes in the form of HELOCS, taking equity out of their home/investment.  This is a great tool for leveraging your equity, but as many saw in the housing decline, when home values are flat or decline, homeowners will no longer have equity in their homes. Placing them in a negative position.
  5. The carrying costs of a house are too high for it to be an investment.
  6. Your house won’t generate cash flow, unless it is a rental or multi-family.
  7. Appreciation is the magic ingredient, but it’s not guaranteed.

With the rise and fall of future home valuations, when the homes values increase people see their homes as investments, but as we remember from the past housing crisis, those areas that saw significant home value declines, the homeowners saw their home as more of a liability than an investment.

No matter, how you see your home, as a wonderful home to raise your family or as an investment, or if you see yourself as a potential real estate investor, it is important to understand the market and the economics of the house, and to approach home ownership from a place of understanding. To receive more posts like this from Tandy on Real Estate updates direct to your inbox, please subscribe.

SOURCES:

CoreLogic – https://www.corelogic.com/blog/2019/06/special-report-investor-home-buying.aspx

NPR – https://www.npr.org/2019/06/21/734357279/1st-time-homebuyers-are-getting-squeezed-out-by-investors

National Association of Realtors – https://www.nar.realtor/newsroom/existing-home-sales-ascend-2-5-in-may

The Week – https://theweek.com/articles/848222/making-house-investment-social-poison

CNBC – https://www.cnbc.com/video/2019/06/24/are-investors-pricing-out-first-time-home-buyers.html

Wall Street Journal – https://www.wsj.com/articles/investors-are-buying-more-of-the-u-s-housing-market-than-ever-before-11561023120

MoneyUnder30.com – https://www.moneyunder30.com/why-your-house-is-not-an-investment

Finally, More Millennials Are Buying Homes

According to Housingwire Millennials are finally buying homes. Ben Lane reported, “Back in September, after existing home sales fell to a three-year low, it appeared that many younger would-be buyers were turning to renting instead of buying. But things look much different just a few months later.”

The increase is being driven by younger buyers under the age of 44, and yes, that includes the older portion of Millennials. Homeownership among buyers age 35 and under rose from 36% to 36.5% in the last year, while homeownership for those from age 35-44 rose from 58.9% to 61.1% in the same time frame. According to CoreLogic’s Ralph McLaughlin, young households, which represent the largest pool of potential homebuyers in the United States, are starting to enter the homeownership game.

Millennials may have been slow to start, but that seems to be changing. Historically, Millennials have been reported to:

  • Have delayed marriage having kids, but that is finally happening.
  • Wanted to enjoy more experiences than traditional activities of buying a home – but that’s changing.
  • Been happy/content living at home, but they are finally getting tired of that or getting kicked out.
  • Have had student debt challenges, but are finally making enough to be able to handle a home debt. 

By the end of 2018, Millennials represented 45% of all new mortgages, compared to 36% for Generation X, and 17% for Baby Boomers, Realtor.com reported to Housingwire. Millennials have now surpassed older generations in the total dollar amount of mortgages, and represent the largest dollar volume by age group. Javier Vivas of Realtor.com says Millennials are getting older, and have better jobs and deeper pockets, allowing them to get into home ownership. They are, however, focused on home affordability, and shocker, are not always picking the large metros as many may think. Instead, they are looking for strong job markets and lower cost options in more non-traditional areas, i.e. Buffalo, NY. In addition, Millennials consistently made lower down payments than other generations since 2015, which is not surprising as a first-time homebuyer.

More Positive News

In Q1 2019, the U.S. Census Bureau reports a flattening in homeownership at 64.2% year over year, breaking an eight quarter streak of gains. CoreLogic attributes this flattening to an uptick in renters, although owner household growth continues to outpace renters. Ralph McLaughlin of CoreLogic brings us a very positive trend change to watch in his April 25th article:

  • The first quarter of 2019 was the sixth consecutive quarter that owner-occupied households grew by more than a million, at nearly 1.1 million new owner households.  
  • The number of new renter households jumped by close to half a million. This is a significant change in trend, as renter households previously fell six out of seven quarters.
  • Total household growth remains remain strong, topping 1 percent for six straight quarters, and continues the most significant streak of household growth in more than 12 years.

McLaughlin reports that data shows increasing evidence that not only are young homebuyers indeed pursuing the American dream of homeownership, but solid household growth overall should continue to support healthy demand over the next two decades. An estimated 46 million new households under the age of 30 will push up demand for both owner and renter-occupied homes over the next two decades. Despite recent headwinds and signs of a market cooldown, these demographic fundamentals should lead to a healthy housing demand through at least 2040.

This is great news for the housing market.

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SOURCES:

Housingwire – https://www.housingwire.com/articles/48317-homeownership-rate-rises-to-four-year-high-as-millennials-are-finally-buying-homes 

CoreLogic – https://www.corelogic.com/blog/2019/04/homeownership-rate-flat-but-household-growth-booming.aspx

Pew Research – https://www.pewresearch.org/fact-tank/2017/05/05/its-becoming-more-common-for-young-adults-to-live-at-home-and-for-longer-stretches/

Housingwire – https://www.housingwire.com/articles/48259-millennials-have-officially-entered-the-housing-market

Realtor.com – https://www.realtor.com/homemade/fact-or-fiction-millennials-are-the-rent-generation/

U.S. Census – https://www.census.gov/housing/hvs/index.html

Spring Buying Season Is Here

Spring is here. Finally, after a long, cloudy and wet winter we have had a couple sunny days, the bluebonnets are starting to boom, allergies are on high alert, and the Spring buying season is starting. To help you prepare, here is a snapshot of the housing market forecast.

Freddie Mac recently reported, “Mortgage interest rates have been steadily declining since the start of 2019. These lower mortgage interest rates combined with a strong labor market should attract prospective homebuyers this spring and could help the housing sector regain its momentum later in the year.” This is great news as we approach our typical Homebuying Season.

Mortgage interest rates continue to decline

According to Primary Mortgage Market Weekly Survey mortgage rates have steadily declined after reaching a high of 4.94 percent in November of 2018. As of late-March, the 30-year fixed mortgage rate was 4.28 percent, its lowest level since February 2018.

Home sales to slowly regain momentum

Existing home sales nationally fell by 7 percent, to 5.32 million homes, in November compared with November 2017, according to the National Assoc­iation of Realtors. Lawrence Yun, chief economist for the National Association of Realtors, expects sales to be flat in 2019. This spring will be the best measure of whether the housing market is returning from very tight to normal, Yun says.

Freddie Mac reports, “existing home sales slumped to start the year, likely in part due to exceptionally cold weather in January and the temporary effects of the government shutdown. With mortgage rates down significantly from last fall, we expect to see existing home sales bounce back and trend higher for the rest of the year. However, our forecast indicates that total home sales (new and existing) will remain down at 5.94 million in 2019 since home sales are starting the year at such a slow rate, before increasing to 6.14 million in 2020.”

However, home sales for the Austin MSA increased 1.5 percent for 2018 vs 2017. Median home price increased 3.7 percent to $305,900. 

Housing starts
Freddie Mac reports, “Housing starts averaged 1.25 million in 2018. Due to the recent increases in building permits, we anticipate that total housing starts will gradually increase over the next two years with most of the growth coming from single-family housing starts. We forecast that total housing starts will increase to 1.27 million units in 2019 and to 1.33 million units in 2020.”

According to Moody’s Analytics, “homebuilders have been underbuilding for more than a decade. Builders have been hindered by labor shortages, community opposition to high-density projects and growing costs of land, labor and materials. Plus, they’ve been building at the mid-to-high end of the market, not at the entry level. But it’s not all bad news. Builders are offering in­centives to buyers, and they’re slowly starting to build smaller, lower-price homes that are more affordable.”

Locally, Austin single family building permits increased 4.6 percent in 2018 over the previous year. 

Home equity

CoreLogic Homeowner Equity Insights 4th Quarter Report continues to see a rise in home equity. “U.S. homeowners with mortgages (roughly 63 percent of all properties*) have seen their equity increase by a total of nearly $678.4 billion since the fourth quarter 2017, an increase of 8.1 percent, year over year.”

A look at home prices

Home prices started to soften in mid-2018. Kiplinger’s Personal Finance recently reported, “Prices will continue rising, but more slowly, as the housing market regains some balance between buyers and sellers.”

Freddie Mac similarly reports, “After accelerating in recent years, home price growth in the United States has continued to moderate. In line with recent trends, we have lowered our home price growth forecasts to annual increases of 3.5 percent and 2.5 percent in 2019 and 2020, respectively.”

To receive more posts like this from Tandy on Real Estate updates direct to your inbox, please subscribe.

SOURCES:

Freddie Mac – http://www.freddiemac.com/research/forecast/20190322_economic_growth.page?

Freddie Mac – http://www.freddiemac.com/pmms/

National Association of Realtors – https://www.nar.realtor/

Real Estate Center Texas A&M University – https://www.recenter.tamu.edu/data/housing-activity/#!/activity/MSA/Austin-Round_Rock

Moody’s Analytics – https://www.moodysanalytics.com/

Real Estate Center Texas A&M University – https://www.recenter.tamu.edu/data/building-permits/#!/msa/Austin-Round_Rock%2C_TX 

CoreLogic – https://www.corelogic.com/insights-download/homeowner-equity-report.aspx

Homeownership mortgage source: 2016 American Community Survey – https://www.census.gov/acs/www/data/data-tables-and-tools/data-profiles/2016/

MReport – https://themreport.com/daily-dose/03-25-2019/important-drivers-home-sales

Kiplinger – https://www.kiplinger.com/article/real-estate/T010-C000-S002-where-home-prices-are-headed-2019.html

The Student Loan Bubble and Path Forward for Graduates

America’s total household debt increased by $193 billion (1.5%) to $13.15 trillion in the fourth quarter of 2017 according to the Federal Reserve. Student loan debt ranks as the second largest household debt falling behind mortgage, and in front of auto loans, credit cards and home equity loans.

Household Debt and Credit Developments as of Q4 2017

*Change from Q3 2017 to Q4 2017

**Change from Q4 2016 to Q4 2017

A closer look at student loan debt.

44.5 million student loan borrowers in the U.S. owe a total of $1.5 trillion as of March 2018 according to the Federal Reserve. And, the average college graduate with a bachelor’s degree left school with $28,446 in student debt in 2016 according to Institute of College Access & Success. In 2018, the Federal Reserve Bank of New York, reports 37.5% of Americans with student loan debt are under the age of 30. Compared to 62.5% of Americans with student loan debt are 30 years old or older.

CNBC recently reported “average debt at graduation is currently around $30,000, up from $10,000 in the early 1990s. The country’s outstanding student loan balance is projected to swell to $2 trillion by 2022, and experts say a large portion of it is unlikely to ever be repaid; nearly a quarter of student loan borrowers are currently in a state of delinquency or default.”

Although outstanding student loan balances have increased, student loan delinquency flows declined slightly but remain at a high level, according to the Federal Reserve. NerdWallet reports the following status on student loan repayments, painting a grim picture for some borrowers.

  • 3.3 million federal loan borrowers have loans in deferment.
  • 2.6 million federal loan borrowers have loans in forbearance.
  • 4.7 million federal loan borrowers have loans in default.

Will the student loan bubble burst?

Robert Farrington with Forbes explains how the student loan bubble will not burst, but instead will cause a slow market stagnation that we will see over time. “Student loans are a collateral on earnings, as long as there is earning potential, the ability to have the loans quickly “pop” via any financial mechanism is rare. Yes, bankruptcy for student loan debt is possible, but once again – rare… The net effect of this student loan crisis won’t be a bubble popping – it will be slow drag on the economy.” Discretionary income that would traditionally go to consumer goods and household spending stimulated by homeownership will instead be going to student debt repayment because there simply is not a discretionary income. This could cause a decline for some industries.

How student loans effects home ownership.

Student debt significantly cuts into future homeowners’ budgets and for many, making it difficult to buy a home. According to the Federal Reserve for every 10 percent in student loan debt a person holds, their chance of home ownership drops 1 to 2 percentage points during their first five years after school. According to the National Association of REALTORS more than 80 percent of non-homeowner younger millennials (born between 1990-1998) cite student loan debt as delaying a home purchase, compared to 86% of older millennials (born between 1980-1989).

What does this mean for graduates today?

NerdWallet recently analyzed the most recent numbers and issues concerning graduates, and conducted a survey by The Harris Poll in May 2018. In analyzing the data, Brianna McGurran, NerdWallet Student Loans Expert, believes the outlook for graduates is not gloom and doom stating, “New grads are in the best position of all: They have the chance to save smart from the beginning.”

Here is what they found for the Class of 2018 Money Outlook:

  • Percentage of recent graduates with student debt: 45%
  • Percentage of recent graduates with student debt who believe they’ll be able to pay it off in 10 years: 39%
  • Age at which graduates of the Class of 2018 can expect to retire: 72
  • Age at which the Class of 2018 can expect to purchase their first home with a 20% down payment: 36

As with any loan, whether for a student loan or a home, approach it as an educated consumer, here are some tips for paying off student loans for future graduates.

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SOURCE:
https://research.stlouisfed.org/publications/page1-econ/2018/10/01/get-an-education-even-if-it-means-borrowing
https://www.nerdwallet.com/blog/loans/student-loans/student-loan-debt/
https://www.newyorkfed.org/microeconomics/databank.html
https://studentaid.ed.gov/sa/about/data-center/student/portfolio
https://www.nerdwallet.com/blog/2018-new-grad-money-outlook/
https://www.cnbc.com/2018/09/21/the-student-loan-bubble.html
https://www.federalreserve.gov/econresdata/feds/2016/files/2016010pap.pdf
https://www.federalreserve.gov/econresdata/feds/2016/files/2016010pap.pdf
https://www.forbes.com/sites/robertfarrington/2018/12/12/student-loan-bubble-wont-burst/#3f9bf00f6768
https://www.newyorkfed.org/newsevents/news/research/2018/rp180213
https://www.forbes.com/sites/robertfarrington/2018/11/27/student-loans-and-bankruptcy/#41ee1633f45d
https://thecollegeinvestor.com/9664/student-loan-bubble-looks-like/
https://www.bankrate.com/loans/student-loans/repay-college-loans-fast/

State and Local Taxes Influence Homebuyer Migration

Overall taxation increasingly determines where people and companies choose to relocate. Last week Rob Chrisman talked about what makes homebuyers move in his daily newsletter. According to MarketWatch jobs are the determining factor for someone to relocate, second to state and local taxes.

ATTOM Data Solutions, national property database provider, released its 2017 property tax analysis for more than 86 million U.S. single family homes which shows that property taxes levied on single family homes in 2017 totaled $293.4 billion, up 6 percent from $277.7 billion in 2016 and an average of $3,399 per home — an effective tax rate of 1.17 percent.

For Daren Blomquist, Attom’s senior vice president, the story of national property taxes is the story of migration around the country. Blomquist told MarketWatch that taxes are “the icing on the cake” in areas that are seeing strong population inflows anyway.

“Among the counties that saw the biggest percentage of in-migration in 2017, according to Census data, all are in Texas, Florida, Georgia, or the Carolinas. Texas doesn’t have particularly low property taxes, but it has no personal income tax, making the overall tax burden much more manageable,” said Andrea Riquier of MarketWatch.

Texas is a pro-business state that continues to attract business and population.

Business Facilities Magazine ranked Texas as the top state in the nation for the Best Business Climate in the magazine’s 13th Annual Rankings Report. Out of all 50 states, Texas achieved the best overall performance in the 2017 State Rankings Report.

According to Texas Governor Abbott, “economic liberty is why Texas leads in job creation and in corporate expansion and relocations.  Restrained government, lower taxes, smarter regulations, right-to-work laws and litigation reform—these are the pro-growth economic policies that help free enterprise flourish and that attract business to Texas from states that overtax and overregulate.”

Austin continues to attract businesses, and is a hub for corporate and regional headquarters, including AMD, Apple, Bazaarvoice, Cirrus Logic, Dell, Dimensional Fund Advisors, eBay, Facebook, Freescale, General Motors, Hanger, Hewlett-Packard, HomeAway, Home Depot, IBM, LegalZoom, National Instruments, Oracle, Whole Foods, and Visa. Check out the  Austin Chamber of Commerce Austin’s major employers map.

Best and worst business climates.

24/7 Wall Street ranked best and worst business climates looking at nearly 50 measures of doing business, including economic conditions, business costs, state infrastructure, the availability and skill level of the workforce, quality of life, regulations, technology and innovation, and cost of living.

Massachusetts ranked No. 1 with a well-educated population that is a boon for state businesses. Such a population presents a more flexible and skilled talent pool for employers. Also, people with college educations tend to have higher incomes, which means they have more disposable income to spend. A nation-leading 42.7% of Massachusetts adults have a bachelor’s degree, compared to 31.3% of adults nationwide. The typical state household earns $75,297 a year, the fourth highest median income of any state and over $17,000 greater than the national median.

And, Louisiana ranked last. Working-age Louisianans are less likely than working-age Americans to have the qualifications for higher-skilled, higher-paying jobs. Just 23.4% of adults in the state have a bachelor’s degree, nearly the lowest percentage of all states. Unlike most states, Louisiana’s working-age population is also declining. In the Census’ American Survey of Entrepreneurs, 46% of state businesses reported unpredictable conditions having a negative impact on their business, and 48% reported slow business or lost sales, each among the highest shares in the country.

Texas ranked among the top states at No. 13.

  • 1-yr. real GDP change: -0.3% (7th largest decrease)
  • salary: $53,838 (12th highest)
  • Adults w/ bachelor’s degree: 28.9% (tied — 22nd lowest)
  • Patents issued/100,000 people: 35.7 (18th most)
  • Working-age population change, 2020-2030: -14.9% (4th largest growth)

According to USAToday, “like North Dakota and a few other oil-producing states, Texas’ economy has taken a beating from the more-than-three-years-long stretch of depressed crude oil prices. However, the state’s economy is more diverse than that of North Dakota, and GDP has contracted by just 0.3% in the most recently reported year. Credit agencies Moody’s and Standard & Poor’s clearly recognize the state’s stability and rate its debt a perfect AAA and Aaa, respectively, with a stable outlook. The state’s businesses not only benefit from a stable economy, but also from a growing labor force. Texas’ working age population is projected to grow by 14.9% between 2020 and 2030, the fourth most of any state.”

Austin MSA stands out with 42.8% having a bachelor’s degree or higher, as compared to 28.9% in Texas, and 31.3% in the United States. And, WalletHub ranked Austin-Round Rock No. 9 in the Most & Least Educated Cities of America.

SOURCE: U.S. Bureau of the Census, American Community Survey

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SOURCE:
http://www.robchrisman.com/daily-mortgage-news-commentary/page/2/
https://www.marketwatch.com/story/americas-new-great-migration-in-search-of-lower-property-taxes-2018-04-05
https://www.attomdata.com/news/market-trends/home-sales-prices/attom-2017-property-tax-data-analysis/
https://gov.texas.gov/news/post/texas-ranked-top-state-for-business-climate-by-business-facilities-magazine
https://businessfacilities.com/2017/07/business-facilities-13th-annual-rankings-report/
https://www.austinchamber.com/upload/files/ed/MajorEmployersMap.pdf
https://www.usatoday.com/story/money/business/2018/03/05/economic-climate-best-and-worst-states-business/376783002/
https://www.austinchamber.com/economic-development/austin-profile/population#Educational%20Attainment
https://wallethub.com/edu/most-and-least-educated-cities/6656/

CFPB advises lenders to assist consumers in disaster areas

Institutions supervised by the Consumer Financial Protection Bureau (CFPB) can assist consumers in disaster areas by:

  • Offering penalty-free forbearance or repayment periods with clearly disclosed terms;
  • Limiting or waiving fees and charges, including overdraft fees, ATM fees, or late fees;
  • Restructuring existing debt by, for example, extending repayment terms with clearly disclosed terms;
  • Refinancing existing debt or extending new credit with terms favorable to the consumer. Terms could, for example, reduce costs, limit payment amounts, or offer consumers other flexibility;
  • Easing documentation or credit-extension requirements;
  • Increasing capacity for customer service hotlines, particularly those that serve consumers in languages other than English; and/or
  • Increasing ATM daily cash withdrawal limits

Click here for more information on the CFPB’s Statement on Supervisory Practices Regarding Financial Institutions and Consumers Affected by Hurricanes Harvey and Irma.

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SOURCE:
https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201709_cfpb_statement-on-supervisory-practice_hurricanes-harvey-and-irma.pdf
https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/statement-supervisory-practices-affected-hurricanes-harvey-and-irma/

FEMA and lender disaster notices

Listed below are excerpts from Rob Chrisman’s http://www.robchrisman.com/ daily blogs from August 22nd to September 7, 2017 regarding FEMA and lender disaster notices for your quick reference. Great advice for lenders, servicers and borrowers for dealing with disaster/flood related issues from Hurricane Harvey. 

With the natural disasters already plaguing regions across the United States, the FEMA website lists all declared incidents with a link to provide details specific to that area, including leaking chemical plants.

Most investors and lenders rely on FEMA to define a disaster and the area impacted. Of course, any monies about to be lent, and recently lent, in a disaster area are questionable from an investor’s perspective. Is the borrower safe, will they make their payments, is the collateral sound? Typically a correspondent investor, such as Chase, will have verbiage in their contract referring the seller to it in the event an area is declared an investor and requiring additional appraisals.

Partners can access Sun West Seller Guide under HELP section in Sunsoft (login required). Please refer to Sun West Forward Mortgage Seller Guide (Section 404.07) and Sun West Reverse Mortgage Seller Guide (Section 3.23) for more details.

Plaza Home Mortgage is reminding its clients to follows its Natural Disaster Policy, GD-PO-008 (login required) for properties located in these areas.

Pacific Union is monitoring the impact of severe storms and disaster declarations across several states as published by FEMA. Currently, loans secured by properties located in impacted areas are subject to standard Pacific Union protocol. Standard requirements for disaster areas apply for these properties as they relate to expectations from appraisers for existing pipeline and new applications. For loans secured by properties in affected areas, the appraiser must comment on the disaster and if there is an impact to the property and value.  In addition, all types of issued insurance policies (hazard, flood, windstorm, etc.) must have binding authority on the subject property. Upon delivery of a loan to Pacific Union Financial, the Correspondent must ensure that re-inspections have been completed and delivered to Pacific Union Financial for all impacted properties in accordance with Pacific Union’s Disaster Area Policy.

“The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and state bank regulators recognize the serious impact of Hurricane Harvey on the customers and operations of many financial institutions and will provide regulatory assistance to affected institutions subject to their supervision. The agencies encourage institutions in the affected areas to meet the financial services needs of their communities.

“Bankers should work constructively with borrowers in communities affected by Hurricane Harvey. The agencies realize that the effects of natural disasters on local businesses and individuals are often transitory, and prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism. In supervising institutions affected by the hurricane, the agencies will consider the unusual circumstances they face. The agencies recognize that efforts to work with borrowers in communities under stress can be consistent with safe-and-sound banking practices as well as in the public interest.

Community Reinvestment Act (CRA): Financial institutions may receive CRA consideration for community development loans, investments, or services that revitalize or stabilize federally designated disaster areas in their assessment areas or in the states or regions that include their assessment areas. For additional information, institutions should review the Interagency Questions and Answers Regarding Community Reinvestment here.

Freddie Mac’s disaster relief options will be available to borrowers with homes in presidentially-declared Major Disaster Areas where federal Individual Assistance programs are made available to affected individuals and households. Until then, servicers may leverage Freddie Mac’s forbearance programs to provide immediate mortgage relief to borrowers affected by the storm.

“We strongly encourage the many American families whose homes or businesses are being impacted by Hurricane Harvey to call their mortgage servicer if the Federal Emergency Management Agency’s declaration is announced,” said Yvette Gilmore, Freddie Mac’s Vice President of Single-Family Servicer Performance Management. “Relief — including forbearance on mortgage payments for up to one year — may be available if their mortgage is owned or guaranteed by Freddie Mac.”

Freddie Mac disaster relief policies authorize mortgage servicers to help affected borrowers in presidentially declared Major Disaster Areas where federal Individual Assistance programs have been extended. Freddie Mac mortgage relief options for affected borrowers in these areas include suspending foreclosures by providing forbearance for up to 12 months, waiving assessments of penalties or late fees against borrowers with disaster-damaged homes, and not reporting forbearance or delinquencies caused by the disaster to the nation’s credit bureaus.

Lenders are reminded that Fannie Mae has selling and servicing policies to assist impacted borrowers (or potential borrowers) following a disaster, such as the hurricane on the Gulf coast. Refer to Assistance in Disasters for information on where to find Fannie Mae’s policies for providing assistance to borrowers impacted by a disaster. View the press release.

Due to the potential impacts of Hurricane Harvey to the southern Texas coast, at this time, and until all affected areas have been identified by the Federal Emergency Management Agency (FEMA) and other sources, Pacific Union Financial, LLC will temporarily suspend the funding of loans secured by properties in impacted areas.

AmeriHome, with FEMA’s DR-4332, reminded clients that policies vary based on program and re-inspection requirements for transactions with and without appraisals. Sellers are reminded that they are responsible for determining potential impact to a property located in an area where a disaster is occurring or has occurred, irrespective of whether the property was included in an area covered by a disaster declaration. Sellers are also reminded that appraisal waivers and reduced appraisal types, such as Fannie Mae’s PIW and Freddie Mac’s ACE, are not eligible in areas impacted by disasters. See the respective Agency requirements for details.

AmeriHome reminded clients that for loans on properties involving transactions with appraisals for Fannie, Freddie, VA, and USDA, if the appraisal is dated on or before incident period end date, including on-going disasters where an incident end period date has not yet been declared then the re-inspection date must be prior to the declared incident period end date.

For non-agency, Core Jumbo, or FHA, if the appraisal is dated on or before incident period end date, the re-inspection date must be after declared Incident period end date. (In other words, re-inspection may not be completed until after the declared incident period end date).

For properties without an appraisal, a property inspection is required if no incident period end date has been declared and Loan Purchase is on or after incident period start date, or the incident period end date has been declared and Loan Purchase is on or within 90 days after incident period end date. Re-inspection type can utilize any of the property inspection types in Seller Guide Section 10.10.7.1., AND include an interior inspection with photos.

Sellers must follow Wells Fargo standard Disaster Policy for all properties located in ZIP codes that Wells Fargo Funding has determined were impacted by Hurricane Harvey. Precautions must be taken for Loans originated within affected areas. Regardless of whether FEMA has formally declared a disaster, all transactions showing any indication of damage to the collateral should comply with the published Disaster Policy Guidelines as outlined for customers here (login required).

Customers of Chase can visit the Correspondent Site for more information on appraisal requirements, and re-inspection requirements.

And, the same with SunTrust – it is spelled out in SunTrust’s seller guide.

NewLeaf Wholesale reminded its brokers that If the subject property is located in an impacted area, with a completed appraisal dated prior to the incident start date, a 1004D re-inspection completed by the Appraiser must certify that the property is free from the applicable natural disaster damage. For appraisals in an impacted area dated during the incident period, the Appraiser must: Comment on the condition of the property and any effects on the marketability AND add detailed language into the body of the appraisal confirming that the property is free from the applicable natural disaster damage OR provide a 1004D re-inspection to certify that the property is free from the applicable natural disaster damage. For appraisals in an impacted area dated after the incident end date, the Appraiser must: Comment on the condition of the property and any effects on the marketability AND add detailed language confirming that the property is free from the applicable natural disasters damage into the body of the appraisal.

As of August 30th, Flagstar Bank is suspending funding in Texas counties: Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria and Wharton. Louisiana parishes include: Beauregard, Calcasieu, Cameron, Jefferson Davis, Orleans and Vermillion. Once funding has resumed, a re-inspection will be required in the counties identified. Loans that have already been issued a Final Approval Clear to Close status will be placed in an Approved with Conditions status until a re-inspection is performed. Please note that appraisal re-inspections are not required to be completed by the original appraiser; however, a Flagstar Bank eligible appraiser must be utilized. For loans that have an appraisal that was ordered via Loantrac, an appraisal re-inspection may be requested via the Appraisal Management module by selecting “Yes” to the “Do you need a property/Disaster Inspection” question.

M&T Bank will enforce the Disaster Re-Inspection Policy for all properties located in the affected counties of Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria, and Wharton.

Appraisals Completed prior to 8-28-2017 (Refer to Ex #03-600: Disaster Affected Areas, for expiration). For loans secured by properties, in the designated disaster areas, and appraised prior to the Federal Government / State Government declaration, please refer to the matrix for required Re-inspection guidance.

First Community Mortgage disaster policy and procedure can be viewed in its product full guidelines. View a copy of the FEMA declared disaster counties.

Wells Fargo Funding Sellers must follow its standard Disaster Policy for all properties located in counties identified by FEMA as being impacted. Precautions must be taken for Loans originated within affected areas. Regardless of whether FEMA has formally declared a disaster, all transactions showing any indication of damage to the collateral should comply with the published Disaster Policy Guidelines as outlined in Seller Guide Section 820.19: Disaster Policy and 820.20: When Required both found in our Conforming Underwriting Guidelines. (Government Loans must follow FHA/VA guidance.) Reminder: When the appraisal is completed on or after the disaster incident period end date, a full appraisal with exterior and interior inspection is required. This includes Loans where a PIW or equivalent was requested by the Automated Underwriting System (AUS).

PennyMac has posted Disaster Policy Implementation: Texas Hurricane Harvey. In response, FEMA has declared 18 counties in Texas as eligible for Individual Assistance. PennyMac’s Disaster Policy requires a post-disaster inspection on all properties located in counties eligible for Individual Assistance.  Due to the continued impact of Hurricane Harvey, FEMA has not declared an incident end date and PennyMac will not be accepting post-disaster inspections and additional counties may be added. PennyMac has also paused funding in the additional counties where the Texas Governor declared a State of Emergency due to the ongoing rain and flooding and potential for additional damage.  PennyMac will continue to monitor counties not yet declared for Individual Assistance for reinstatement.

AmeriHome is implementing re-inspection requirements for four additional Texas counties that were included in an amended State of Disaster declaration made 8/28/2017 by Texas governor Abbott. Those counties are Angelina, Orange, Sabine and Trinity. AmeriHome is also re-inspection requirements for FEMA declared Texas DR-4332 and Louisiana EM-3382.

“As we work together to support borrowers affected by Hurricane Harvey, lenders are reminded that Fannie Mae has selling and servicing policies to assist borrowers (or potential borrowers) affected by disaster. Refer to the Assistance in Disasters page for information about its policies for providing assistance to borrowers impacted by a disaster. Fannie will provide additional policy guidance in a separate lender communication.

In light of the devastation caused by Hurricane Harvey, if you have mortgages secured by properties in the affected areas that are in the delivery pipeline, you should remove these mortgages from a Guarantor pool or Cash commitment.”

Additionally, you should review Freddie Mac requirements related to properties affected by disasters to prepare to address impacted mortgages you originated and planned to sell to Freddie. “While it’s premature to determine the full impact of Hurricane Harvey, review the applicable sections of the Single Family Seller/Servicer Guide and your procedures for inspecting and updating a property’s value, condition and marketability when a major disaster or emergency occurs. Guide Section 5601.2 (c) – Requirements for properties affected by disasters, Guide Section 5601.2 (b) – Requirements for incomplete property improvement, Guide Section 4201.13 – Circumstances that adversely affect the value of the property.

We rely on you to determine the number of mortgages secured by impacted properties and the extent of damage to each property that may affect its acceptability as security for the mortgage.

As we continue to closely monitor the situation, we are grateful to our Seller/Servicers who are responding to requests for assistance from borrowers who are facing unexpected hardships because of the hurricane.”

As always, clients should read the full bulletins from lenders and investors. 

Fannie Mae reminds clients that “Following a disaster, we rely on our customers to implement our disaster relief policies and assist impacted homeowners. We require servicers to assess property damage and the needs of homeowners in order to provide appropriate relief. In addition, our Account Teams work closely with our customers to determine physical and operational impacts to their business operations and their ability to service mortgages owned or guaranteed by Fannie Mae.”

“Citibank Correspondent Lending is ready to help residents regain pre-storm business functionality. Among other assistance, Citibank will work with you on a case by case basis regarding loan file delivery and lock expiration dates, consider rate lock extensions based on your business needs due to storm damage1and consider fee waivers on issues arising due to the impact of the storm.

“As a reminder, Lenders represent and warrant that the properties securing all loans submitted to Citibank for purchase consideration have not been negatively impacted by any natural or man-made disaster as of the date Citibank purchases the loan. The Lender also represents and warrants that the borrower’s credit qualifications for the underlying loan have not been negatively impacted by any natural or man-made disaster as of the date Citibank purchases the loan.

“Lenders must have a process in place for identifying disaster areas and potential impact to properties that are the subject of loans proposed for sale to Citibank. If the Lender’s disaster policy includes a requirement for re-inspection of the property, the re-inspection should be included in the closed loan file submitted for purchase (i.e. appraisal ordered prior to the storm with closing after the event).”

Citi’s note finished with, “For loans originated after the storm, it is important to note that section 501 of the Correspondent Manual. Lenders are responsible for ensuring that the borrower’s credit qualifications for the underlying loan have not diminished because of the storm. Property or Lender’s place of business must be located in a FEMA disaster area.”

Because of the Presidential Declaration of a Major Disaster Area (PDMDA) in designated counties in the State of Texas due to damage caused by Hurricane Harvey, FHA is issuing this reminder to mortgagees originating and/or servicing mortgages in the affected PDMDAs: FHA-insured mortgages secured by properties in a PDMDA are subject to a 90-Day moratorium on foreclosures following the disaster. HUD provides mortgagees an automatic 90-Day extension from the date of the moratorium expiration date to commence or recommence foreclosure action or evaluate the borrower under HUD’s Loss Mitigation Program.

Mortgagees should review complete servicing guidance in the Single-Family Housing Policy Handbook (SF Handbook) 4000.1, Sections III.A.2 and III.A.3.c relating to the servicing of mortgages in PDMDAs.

In preparation for assisting homeowners with longer-term recovery efforts, mortgagees should also review: FHA’s 203(h) Mortgage Insurance for Disaster Victims requirements in Section II.A.8.b of the SF Handbook. The 203(h) program allows FHA to insure mortgages for victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home. FHA’s 203(k) Rehabilitation Mortgage Insurance Program requirements in Section II.A.8.a of the SF Handbook. The 203(k) program provides mortgage financing or refinancing which includes the cost of home repairs – both structural and non-structural – into the loan amount. Mortgagees can find more information about the policies referenced above and other FHA PDMDA policies on the FHA Resource Center’s Online Knowledge Base.

The Mortgage Solutions Financial Disaster Policy must be followed for the following areas Texas DR-4332 and Louisiana EM-3382.

Mortgage Solutions guidelines have been updated to address any property area located in a FEMA declared disaster area requiring individual assistance or as determined by MSF. Search for a specific property provided by Disaster Assistance.gov.

Conventional, VA and USDA: Properties with an appraisal effective date prior to the date of the disaster, appraiser to provide a 2075 drive-by, 1004D update/completion report, or Disaster Inspection Report, or Disaster Area inspection prepared by a certified appraiser to verify home is not affected Specific requirements must be met within the inspection.

Specific to Conventional properties, disaster inspections are not required for DU Refi Plus and LP Open Access transactions. Property Inspection Waiver (PIW) is not eligible in disaster-impacted areas. If a FEMA disaster is declared after the loan has closed with a PUW, one of the above-listed exterior inspection documents is required.

FHA Properties with an appraisal effective date prior to the date of the disaster, appraiser to provide a 1004D update report, prepared by a certified FHA Roster Appraiser to verify home is not affected. Disaster inspections are not required on new FHA transactions endorsed by FHA prior to the disaster date. Disaster inspections are not required for FHA Streamline without Appraisal transactions.

NewLeaf sent out, “All subject properties in the areas impacted by the disaster require evidence that the subject sustained no damage from the identified disaster for NewLeaf transactions. As the effects of Hurricane Harvey are continuing, please note impacted areas are subject to change without notice.

If the subject property is in an impacted area listed on the NewLeaf incident table with a completed appraisal dated prior to the incident start date, a 1004D re-inspection completed by the Appraiser must certify that the property is free from the applicable natural disaster damage. For appraisals in an impacted area dated during the incident period, the Appraiser must: Comment on the condition of the property and any effects on the marketability AND add detailed language into the body of the appraisal confirming that the property is free from the applicable natural disaster damage OR provide a 1004D re-inspection to certify that the property is free from the applicable natural disaster damage.

Prior to closing and funding, ResMac, Inc. will require a property inspection for any loan secured by a property in the FEMA declared Texas DR-4332. If the subject property is in one of the impacted counties and the appraisal was completed prior to the incident period end date, ResMac will require a post disaster inspection confirming the property was not adversely affected by the disaster. The inspection report must be dated no earlier than the date of disaster conclusion as determined by FEMA and/or the State of Texas. Clients may utilize any of the following re-inspection options to satisfy the post disaster inspection requirement, with a photograph of the subject property: Property Inspection Report (Fannie Mae Form 2075/ Freddie Mac Form 2070), or Appraisal Update and/or Completion Report (Fannie Mae Form 1004D/Freddie Mac Form 442), or Uniform Residential Appraisal Report (Fannie Mae Form 1004/Freddie Mac Form 70), Exterior Only Appraisal Report (Freddie Mac Form 2055), Individual Condominium or PUD Unit Appraisal Report (Fannie Mae Form 1073/Freddie Mac Form 465), Disaster Inspection Certification from a Licensed Certified Inspector.

Flagstar will apply a 15 day, no cost extension to loans in the counties/parishes impacted by Hurricane Harvey that meet the following criteria: Must have a lock expiration date that falls between Friday, August 25, 2017 and Friday, September 15, 2017. Loan must be in underwriting and is not funded or in a closing package received status (i.e. approved with conditions, conditions received, and final approval). Flagstar will reduce funding extension fees to 1 basis point per day on delivered loans provided that all conditions are cleared except for the appraisal re-inspection.

AXIS AMC has been through several disasters across the country, and has been here to help guide and navigate our industry partners through each of them. Axis expects to see a multitude of Disaster Certifications needed on properties in those markets that have been affected although lending partners and other clients may have different reporting requirements and needs. If possible, send Axis any policy or requirements that you feel are specific to you and Axis will try to accommodate.

CoreLogic estimates that about 70% of the flood damage in Houston was uninsured. Lenders are worried about everything from lost closing packages to forced-placed insurance policies. The ABA estimates about 1,000 bank branches were impacted by the unprecedented rainfall and flooding of Hurricane Harvey. Hurricane Harvey comes at a time when the National Flood Insurance Program owes $24.6 billion to the Treasury already. This will put pressure on a program that is expiring this month. The impact of Harvey following Katrina means bankers should prepare for extreme regulatory scrutiny around all things flood-related at upcoming exams.

With the odds increasing that Irma will impact U.S. holdings, including Florida, the Federal Emergency Management Agency (FEMA) is busy indeed. Those impacted should register with FEMA online, in person at a disaster recovery center or by calling 1-800-621-3362. They should also have their homeowner’s insurance company contact info, plus flood or earthquake insurance company, if either applies, and their mortgage servicer.

What if a borrower can’t pay their mortgage? If the disaster makes it impossible to make monthly house payments, borrowers should ask their servicer for mortgage forbearance. A forbearance allows one to stop making payments for an agreed-upon time. In a forbearance agreement, one might make partial payments or stop making payments for a specific time. Generally, a forbearance lasts up to six months and can be extended up to another six months. Interest still accrues during the time the debtor isn’t making full monthly payments. But under a forbearance agreement, the lender won’t charge late fees or report them to credit bureaus.

Of course, the lender/servicer will want the mortgagor to catch up on missed payments after the forbearance period is over. That might involve paying extra every month for a few years, modifying the loan, or reaching some other negotiated agreement. Freddie Mac spread the word that if applicable, a mortgage loan is in forbearance for 24 months, Freddie will repurchase the loan from its mortgage participation certificates.

Some borrowers talk with a Department of Housing and Urban Development-approved housing counselor before agreeing to forbearance. HUD: 1-800-569-4287.

There is also aid available. Direct federal aid consists mostly of loans from the Small Business Administration which oversees delivering disaster-related loans to individuals and families. The SBA extends loans at favorable interest rates to replace or repair primary residences. Someone can borrow up to $200,000 to cover renovation or construction costs, and regardless of whether someone is a renter or a homeowner, the SBA will lend you up to $40,000 to replace personal property such as clothing, furniture, appliances and vehicles.

FEMA offers grants to fill in gaps between insurance payouts and SBA loans. The maximum grant is $33,300 per household for disasters that happen in the fiscal year that ends Sept. 30, 2017. Grants can be used for expenses such as basic home repairs that aren’t covered by insurance, temporary rent and disaster-caused medical and child care. For more information, read the section called “What Does Individual Assistance Cover?”

The Federal Housing Administration has a program that’s designed to help disaster survivors rebuild or buy replacement homes. Under the Section 203(h) program, the FHA insures mortgages for people whose homes were destroyed or damaged in disasters. Borrowers don’t have to make a down payment.

Even when a house is destroyed the mortgagor should continue paying on the note until they have talked with the servicer and have reached a settlement with the insurance company. After all, the borrower promised to repay the loan when they signed the mortgage documents at closing. The borrower is liable for the loan debt, and making their payment is part of the borrower’s contractual obligation.

Servicers are contacting borrowers. In response to Hurricane Harvey, Freddie Mac is allowing servicers to “verbally grant” 90-day forbearances, and Fannie Mae is letting servicers grant 90-day forbearances “even if they cannot contact the impacted homeowner immediately.”

AFR Wholesale is conducting a webinar for brokers to provide answers and solutions to guide their customers with the best options to help them rebuild in the wake of natural disasters, like Hurricane Harvey. The webinar will focus on products, like the 203(h) mortgage insurance program that helps victims in Presidentially designated disaster areas recover by making it easier for them to re-establish themselves as homeowners. Scheduled for this Friday, September 8th from 2-3PM EST, those interested in this timely webinar on disaster relief resources can register here.

Wells Fargo is taking steps to assist borrowers in the Hurricane Harvey affected areas. If you’re aware of a Wells Fargo Home Lending borrower in need, share the following information: Wells Fargo Home Lending customers can contact us at 1-888-818-9147, Monday through Friday from 6:00 a.m. to 10:00 p.m. CT, and Saturday from 8 a.m. to 2PM CT. All Wells Fargo customers can reach us at 1-800-TO-WELLS if they need assistance or have questions. Our mobile response unit will be deployed to the affected area once the situation is stabilized. Wells Fargo customers will be able to receive in-person assistance with their mortgage, home equity or auto loans. Wells Fargo is waiving ATM fees for customers in the affected areas, as well as reversing other fees – such as late fees – for all our consumer products, including credit cards and checking accounts.

On 9/1/2017, with Amendment #3 to DR-4332, FEMA announced federal disaster aid with individual assistance for 3 additional Texas counties.

The Texas Appraiser Licensing and Certification Board (TALCB) has announced that any appraiser license that expires in the month of August will be extended 30 days due to delays caused by Hurricane Harvey. In addition, open applications for licenses that expire between August 21, 2017 and September 30, 2017 will be extended by 30 days. If a Pacific Union Financial loan file includes a Texas appraisal license with an expired license that is within the dates detailed above, include a screenshot of the TALCB announcement with the appraiser’s license in the loan file.

Loans secured by properties located in impacted areas are subject to suspension of funding or proceeding with caution according to standard Pacific Union protocol. Standard requirements for disaster areas apply for the funding of properties as they relate to expectations from appraisers for existing pipeline and new applications. For loans secured by properties in affected areas, the appraiser must comment on the disaster and whether there is an impact to the property and value.  In addition, all types of issued insurance policies (hazard, flood, windstorm, etc.) must have binding authority on the subject property. Its Disaster Area Policy, Pacific Union reserves the right to impose restrictions and/or suspend funding, without notice, in additional areas subject to any adverse event that may impact the safety/habitability/value of impacted properties.

Mortgage Solutions Financial has posted revised information on affected areas due to Hurricane Harvey. Lenders are reminded its disaster policy must be followed.

PennyMac posted updates to Texas Hurricane Harvey requirements.

FAMC is requiring disaster re-inspections that are dated after the incident end date on properties affected by Hurricane Harvey. Due to unprecedented levels of rainfall and the ongoing flooding caused by this event, the extent of all impacted areas is currently unknown. Once the incident end date is established by FEMA, it will be published on the Disaster County Detail Worksheet located on the FAMC website.

M&T Bank will enforce the Disaster Re-Inspection Policy for all properties located in the affected counties. For loans secured by properties, in the designated disaster areas, and appraised prior to the Federal Government / State Government declaration, refer to the M&T Bank matrix for procedures.

Before going on, readers should a commentary piece yesterday was written by NerdWallet’s Holden Lewis. The article for those impacted by disasters is titled, “What to do after a disaster hits your home, mortgage,” was published on Sept. 1 and can be found on this page. Credit is due where credit is due, and in this case to Mr. Lewis – my apologies.

Of particular interest to lenders looking to pick up a point or two is the Community Reinvestment Act (CRA) information. “Financial institutions may receive CRA consideration for community development loans, investments, or services that revitalize or stabilize federally designated disaster areas in their assessment areas or in the states or regions that include their assessment areas. For additional information, institutions should review the Interagency Questions and Answers Regarding Community Reinvestment here.”

Freddie Mac confirmed that its disaster relief options, like Harvey, will be available to homeowners in impacted areas. “Freddie Mac’s disaster relief options will be available to borrowers with homes in presidentially-declared Major Disaster Areas where federal Individual Assistance programs are made available to affected individuals and households…Freddie Mac mortgage relief options for affected borrowers in these areas include: Suspending foreclosures by providing forbearance for up to 12 months; Waiving assessments of penalties or late fees against borrowers with disaster-damaged homes; and not reporting forbearance or delinquencies caused by the disaster to the nation’s credit bureaus.”

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SOURCE:
http://www.robchrisman.com/

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