Still Work To Be Done

As the euphoria wears off in the aftermath of our stellar June employment release, we realize that there is still work to be done in order to fully recover from the financial crisis and deep recession. The recovery has been going on for five long-years, but it is still not fully mature. For example, while we have recovered all jobs lost during the recession, we have not added enough jobs to accommodate the population growth that has occurred during and since the recession. Even at today's increased pace of job growth, this void will not be filled for two years or longer.

Furthermore, while the unemployment rate has dropped to 6.1% -- which was the lowest in almost six years, the "underemployment" rate still stands at 12.1%. The underemployment rate includes those who are working part-time because they can't find full time jobs. The labor participation rate stands at 62.8% which is a 36-year low. It is true that the baby boomer generation is reaching retirement age and this contributes to the labor participation statistic. On the other hand, it is not merely how many jobs are created -- it is also what type of jobs are created. America needs more high paying full-time jobs.

So before we celebrate the end of bad times, we must understand that there is truly more work to accomplish. The fact that we have more room to grow is actually good news for right now because this gives the Federal Reserve Board latitude to keep interest rates lower for a longer period of time and not worry about the economy overheating. The markets will cause rates to rise as we witness the start of the cycle of better times. If this surge in job hiring spreads to the real estate markets, we will start making up ground in a hurry instead of the snail's pace of the past five years. If that happens, expect the Fed to act much more quickly.

The Markets

• Rates were up slightly in the past week, showing little change despite the strong employment data.
• Freddie Mac announced that for the week ending July 10, 30-year fixed rates increased slightly to 4.15% from 4.12% the week before.
• The average for 15-year loans rose to 3.24%.
• Adjustables were also stable in the past week with the average for one-year adjustables rising slightly to 2.40% and five-year adjustables increasing marginally to 2.99%.
• A year ago 30-year fixed rates were at 4.51%.
• Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac --"Rates on home loans increased for the week as the labor market appears to be improving. Based on the employment report released last week, the U.S. economy added 288,000 jobs in June, gained 224,000 in May and increased by 304,000 in April. Also, the unemployment rate in June fell to 6.1 percent from 6.3 percent in May."

Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Breaking News. Three years after it was proposed, one of the major post-crisis residential finance regulations is on track to be finalized — but on terms much looser than originally envisioned. Intended to force lenders to keep some of the risk of loans, including home loans that are packaged into securities and sold to investors, the final rule isn't likely to have a significant impact on the residential finance market, at least in the near term. The regulation was “the single most important part” of the 2010 Dodd-Frank financial reform law, according to Barney Frank, the former Democratic chairman of the House Financial Services Committee for whom the law is named. The rule was supposed to require lenders to maintain a 5-percent stake in loans that are packaged into securities, except for home loans that met certain strict criteria for safety, called qualified residential mortgages, or QRMs. The Wall Street Journal reported earlier this week that the Securities and Exchange Commission, the last holdout of the six regulatory agencies needed to approve the rule, has given the go-ahead to finalize a rule that would include a much broader definition of a QRM than originally planned. The industry is now expecting the rule to be finalized over the next few months. When the rule was first proposed in April 2011, it had stringent requirements for loans that would meet the standards for qualification. It would have required a minimum 20 percent down payment, low debt-to-income ratios and tight credit history standards, among other criteria. But after lenders and housing groups protested that the rule would stifle lending, the agencies -- the SEC, the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Department of Housing and Urban Development -- backed off. In October, they proposed instead to set the definition equal to the standards for a “qualified mortgage” determined by the Consumer Financial Protection Bureau. The CFPB’s qualified mortgage definition does not specify a down payment and is generally more expansive than the first proposed QRM rule. Source: The Washington Examiner

Many consumers are overestimating the down payment they need in order to purchase a home, according to Christina Boyle, vice president and head of single-family sales at Freddie Mac. Consumers believe they need 11 percent to 15 percent in order for lenders to approve them for a loan, according to a survey of renters and non-home-owners conducted by Zelman & Associates in New York. Thirty-nine percent say they need at least 15 percent of the purchase price in order to qualify for financing. Only 28 percent of respondents say they would even qualify for a home loan. But in reality, home buyers often can qualify for a conforming, conventional home loan with a down payment of as little as 5 percent — and sometimes even 3 percent — Boyle writes. Between 2009 and 2013, Freddie Mac’s purchases of home loans with down payments of less than 10 percent more than quadrupled. So far in 2014, more than one in five borrowers who took out conforming, conventional loans put down 10 percent or less. “Letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines,” Boyle writes. “Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 percent or 10 percent.” However, Boyle notes that any borrower who puts down less than 20 percent will be required to buy mortgage insurance. Boyle says that buyers should also be encouraged by the abundant down-payment assistance programs that exist to help break into home ownership. Source: Freddie Mac

More houses are moving into positive equity as home prices continue to rise and push homeowners out of the water. CoreLogic’s latest report found that 300,000 homes returned to positive equity in the first quarter of 2014, bringing the total number of financed residential properties with equity to more than 43 million. “Prices continue to rise across most of the country and significantly fewer borrowers are underwater today compared to last year,” said Anand Nallathambi, president and CEO of CoreLogic. To put this into numbers, approximately 6.3 million homes, or 12.7% of all financed residential properties, were still in negative equity as of first quarter 2014 compared to 6.6 million homes, or 13.4% for the fourth quarter of 2013. “Despite the massive improvement in prices and reduction in negative equity over the last few years, many borrowers still lack sufficient equity to move and purchase a home,” said Sam Khater, deputy chief economist for CoreLogic. “One in five borrowers has less than 10% equity in their property, which is not enough to cover the down payment and additional costs associated with a conventional loan.” Borrowers with less than 20-percent equity, referred to as “under-equitied,” may have a more difficult time refinancing their existing home or obtaining new financing to sell and buy another home due to underwriting constraints,” the report said. Under-equitied properties accounted for 20.6% of all financed residential properties nationwide in first quarter 2014, with more than 1.5 million residential properties at less than 5% equity, referred to as near-negative equity. Source: Housing Wire

Consumer & Realtor Corner

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Down Payments Not As High As Most Think

Many consumers are overestimating the down payment they need in order to purchase a home, according to Christina Boyle, vice president and head of single-family sales at Freddie Mac. Consumers believe they need 11 percent to 15 percent in order for lenders to approve them for a loan, according to a survey of renters and non-home-owners conducted by Zelman & Associates in New York.

Thirty-nine percent say they need at least 15 percent of the purchase price in order to qualify for financing. Only 28 percent of respondents say they would even qualify for a home loan. But in reality, home buyers often can qualify for a conforming, conventional home loan with a down payment of as little as 5 percent — and sometimes even 3 percent — Boyle writes. Between 2009 and 2013, Freddie Mac’s purchases of home loans with down payments of less than 10 percent more than quadrupled. So far in 2014, more than one in five borrowers who took out conforming, conventional loans put down 10 percent or less.

“Letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines,” Boyle writes. “Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 percent or 10 percent.” However, Boyle notes that any borrower who puts down less than 20 percent will be required to buy mortgage insurance. Boyle says that buyers should also be encouraged by the abundant down-payment assistance programs that exist to help break into home ownership.

Source: Freddie Mac