Thursday, June 17, 2021

Do you want to jump into the U.S. housing market?

Blog posted by: Betty Rauch - Loan Originator - Florida State Mortgage Group, Inc. “Homebuyers—interest rates are still historically low, though they are inching up. Housing prices have spiked during the last six-to-nine months, but we don’t expect them to fall soon, and we believe they are more likely to keep rising. If you are looking to purchase a new home, conditions now may be better than 12 months hence…Those who remember the housing bubble of 2006-2007 may be nervous watching U.S. housing prices soar now. But the previous bubble was fueled by speculative buying, which we do not think is the case today.” J.P. Morgan -Insights Report Article Written by :Joe Seydl -Senior Markets Economist Apr 13, 2021 Conditions are favorable for investing in the sector and, still, for buying a home. Dan Alter, Executive Director, Mortgage Solutions, J.P. Morgan Private Bank Over the last year, we’ve seen the real estate market evolve from largely dormant to red hot in a number of areas—and several important factors point to a continued increase in home prices. Mortgage rates have risen, but are still historically low. Home construction still falls short of meeting demand. Remote work is likely to keep suburbs attractive. And very importantly, Millennials—the largest generation in U.S. history—are expected to keep buying homes. Whether you are a homebuyer, an investor, or both, now may be a good time to consider buying U.S. real estate—for personal use or strategically—within your portfolio. Homebuyers—interest rates are still historically low, though they are inching up. Housing prices have spiked during the last six-to-nine months, but we don’t expect them to fall soon, and we believe they are more likely to keep rising. If you are looking to purchase a new home, conditions now may be be better than 12 months hence, especially if you are looking in the suburbs or the U.S. South. Investors—consider making an allocation to the U.S. housing sector. Since 2008, the shortage in construction of new homes has been so extreme that there is now a lack of homes available for sale. It will take time to reverse this supply shortage. We expect the current construction cycle, already heating up, to continue for years. The homebuilding sector currently seems reasonably priced: It’s trading at a 2x discount relative to its 10-year average P/B ratio versus the S&P.1 But note that publicly traded homebuilders are not the only companies likely to benefit. We suggest you also look into companies tied to home improvement and other aspects of robust construction activity.
What will fuel the U.S. housing market? Four forces that recently helped revive U.S. housing are likely to help keep it humming: government support, suburban bliss, a flight to the South and all those Millennials ready for the family stage of life. 1. Government support The Federal Reserve and the Biden administration both support the U.S. housing market. The U.S. housing revival might have started sooner, except that the Federal Reserve hiked interest rates aggressively in 2017-18, raising the cost of borrowing and depressing demand. Now, the Fed is on the side of housing strength: Mortgage rates are still low, though rising, and it is widely expected that the Fed will be very slow to raise interest rates. Indeed, we think the Fed’s next rate-hiking cycle won’t begin until sometime in late 2023. We acknowledge that since the start of the year, the 30-year mortgage rate has risen from an all-time low of 2.65% to 3.25%, according to Freddie Mac as of March 24, 2021. But we’re not concerned that rates are likely to stifle the housing recovery anytime soon.2 Although mortgage interest rates are rising, they are still below the effective rate at which buyers were financing home purchases and fueling the housing market at the end of last year. Homebuilders say that mortgage rates would need to rise to around 3.8% (with a low of 3.5% and a high of 4.25%) before they would start to choke off housing sales, according to a survey done by ISI recently.3 Rates are not there yet! As long as inflation is well behaved, we think the move higher in long-term rates will be at a slower pace from here. To further understand our view on interest rates, take a look at our latest thought leadership, Worried about inflation? We’re not.
Why we think the increase in long-term rates will remain slow Comparing the 30-year yield with the Federal Funds rate, treasury bond yields appear to have already priced in inflation expectations Source: Federal Reserve Board. As of March 31, 2021. Meanwhile, the Biden administration has an accommodative policy toward housing. In its infrastructure and tax bill, which may pass sometime later this year, the administration is aiming to set aside several hundred billion dollars for affordable housing construction over the next five to 10 years. 2. Suburban bliss People are moving out of cities into surrounding suburbs. Movement began during the pandemic lockdowns, as people, fearing COVID-19, wanted to flee city congestion and small apartments. Remote work during the pandemic made it more possible to live farther away from urban centers. Now, almost half of office workers and employers appear to agree: Two to three days of working from home may be ideal. This new norm may keep the demand for suburban housing to remain strong.4 Long-term housing in cities such as New York offer good value. However, we do not expect a rapid bounceback after the COVID-19--inspired lockdowns and remote work adjustments. If you are not in it for the long haul, you may want to temper your expectations regarding near-term appreciation. 3. Flight to the South Already underway before the pandemic hit, the “flight to the South” greatly accelerated during the COVID-19 crisis. We believe it is likely to continue. The issue: Big cities in the Northeast and the West Coast are expensive, and their state and local taxes, already high pre-pandemic, are likely to get more onerous in the virus’s wake. Business is booming in the U.S. South Business is booming in the US. This chart tracks the year over year change in number of new business applications by region comparing the distinct spike in the South from 2015-2019 and 2020. Source: Census Bureau. As of December 2020.
4. Millennials Who will keep buying homes? Millennials! They not only form the largest generation in U.S. history, but also have plenty of scope to become homeowners. Indeed, their move into homeownership has only just begun. Millennials have driven the household formation rate (the rate at which they establish homes of their own) from a low of 600,000 in 2010 to 1.5 million today. This generation is expected to maintain a “household formation” pace of 1.5 million to 1.75 million annually after the COVID-19 crisis has passed.5 This is not a housing bubble Those who remember the housing bubble of 2006-2007 may be nervous watching U.S. housing prices soar now. But the previous bubble was fueled by speculative buying, which we do not think is the case today. Indeed, today: Leverage ratios remain low6 Home buying has been rational (thus far), as most mortgage lending is to those with high FICO scores, and credit quality has remained strong relative to 2006-077 Construction activity should power on, as high home prices make new construction attractive, especially when there is a shortage of inventory8 We can help Bottom line: We expect U.S. housing to remain an important source of strength for investors over the next several years. Of course, there are potential risks: Interest rates and price inflation could go higher than expected. However, we think these risks will be manageable. So if you are looking to enhance your portfolio—or are thinking you might like to buy a home—we suggest you speak with your J.P. Morgan team. We can help you assess whether an investment in real estate might align with the goals you have set for you and your family.
Source: Keeping Current Matters June 2021

Monday, June 7, 2021

RefiNow and Refi Possible available summer 2021


Blog Posted by Betty Rauch - Loan Originator NMLS#390883
Florida State Mortgage Group, Inc.  NMLS#393326
Written  by:  Aly J. Yale -The Mortgage Reports Contributor

It’s about to get easier for low-income homeowners to refinance. 

Thanks to a new initiative from the Federal Housing Finance Agency (FHFA), certain low-income borrowers will soon be eligible for reduced-cost refinances that guarantee a lower interest rate and monthly payment.

According to the agency, the option will save borrowers anywhere from $100 to $250 per month, on average. That’s a total savings of $1,200 to $3,000 per year.

How RefiNow and Refi Possible work

The new refinance option is dubbed RefiNow by Fannie Mae and Refi Possible by Freddie Mac. It targets lower-income borrowers with conforming mortgages, who could benefit from lower interest rates and payments but haven’t been able to refinance because of the upfront cost.

RefiNow will be available from June 5 for Fannie Mae-backed loans. Refi Possible starts in August 2021 for Freddie Mac-backed loans.

Those who qualify would see their monthly mortgage payment reduced by at least $50 and their interest rate lowered by 50 basis points (0.50%) or more.

Those who qualify would see their monthly payment reduced by at least $50 and their interest rate lowered by 0.50% or more.

For example, if your current interest rate is 3.5% and you qualify for Fannie Mae’s RefiNow program, your new interest rate would be 3.0% or possibly lower. 

Some borrowers could also receive a $500 credit to cover the home appraisal. And the adverse market refinance fee — which charges 0.50% on loans of $125,000 or more — may be waived.

With a typical refinance, these types of waivers and guaranteed reductions are not available. Any reductions in rate or payment are directly tied to the borrower’s qualifications — their credit score, debt-to-income ratio, home equity share, and more.

With RefiNow and Refi Possible, low-income homeowners will have a unique chance to refinance with guaranteed savings and reduced upfront costs.

Potential savings for homeowners 

The potential savings of the RefiNow and Refi Possible programs could be huge.

According to the FHFA, it should be around $100 to $250 per month on average. But depending on the borrower, it could be larger or smaller, too.

Here’s an example: Say you took out a $200,000 loan at a 5% interest rate in January 2018. The loan came with a $1,073 monthly payment. Since it’s been three years, you’ve paid down your balance slightly, and you currently have about $188,000 left on the loan. 

If you qualified for the program, you could refinance into a new, 30-year loan with an interest rate of 4.5%.

That would reduce your monthly payment to $952 per month — a difference of around $120 or, over the course of one year, more than $1,440 saved. 

That, of course, doesn’t include the savings from the appraisal waiver ($500) and the adverse market fee.

The adverse market fee charges 50 basis points (0.50%) of all loan balances over $125,000. So for a $188,000 loan, you’d pay $940.

That means refinancing will become much more affordable for homeowners who qualify to have the fee waived.

RefiNow and Refi Possible eligibility

To qualify for the new low-income refinance program, you’ll need to have a loan that’s guaranteed by either Fannie Mae or Freddie Mac.

If you’re not sure whether your loan falls into this category, use Fannie and Freddie’s lookup tools.

Other requirements for RefiNow and Refi Possible include:

  • Your income must be at or below 80% of the area’s median income
  • You must not have missed any mortgage payments in the last six months and no more than one in that last 12 months
  • Your current loan-to-value ratio can be no larger than 97%
  • Your debt-to-income ratio can be no higher than 65%
  • Your credit score must be 620 or higher

Your home also must be a single-family, one-unit property that you occupy as your primary residence (no investment properties or multi-family homes/duplexes).

When will the new refinance programs be available? 

Fannie Mae’s RefiNow program will be available starting June 5, 2021 to homeowners with existing mortgages backed by Fannie Mae.

Freddie Mac’s Refi Possible will be available in August of this year for homeowners whose current mortgages are backed by Freddie.

Not sure whether your home loan is owned by one of these two agencies? You can find out using Fannie Mae’s lookup tool and Freddie Mac’s lookup tool.

Make sure you use both lookup tools if you’re unsure, because either agency may have bought your loan after it closed.

Why is FHFA targeting low-income borrowers? 

Refinancing has been hugely popular in the past year, especially with mortgage rates hovering near historic lows. But according to FHFA, lower-income homeowners didn’t have the same opportunities to refinance their homes.

“Last year saw a spike in refinances, but more than 2 million low-income families did not take advantage of the record low mortgage rates by refinancing,” said Mark Calabria, FHFA director.

“This new refinance option is designed to help eligible borrowers who have not already refinanced save between $1,200 and $3,000 a year on their mortgage payment.”

“It’s a very homeowner-friendly move that should help people stay in their homes and give them more financial breathing room.” –Jeff Taylor, Co-founder, Mphasis Digital Risk

The program can also help lower-income families struggling due to the pandemic by freeing up cash flow and reducing their monthly financial burden.

It could even help down-on-their-luck borrowers keep their homes in some cases.

“The money saved by refinancing can be used to help those who have experienced a job loss or some financial impairment since the start of the pandemic,” said Jeff Taylor, co-founder of Mphasis Digital Risk and a board member at the Mortgage Bankers Association.

“It’s a very homeowner-friendly move that should help people stay in their homes and give them more financial breathing room,” he says.

Should you wait to use RefiNow or Refi Possible? 

There’s no way to perfectly time your refinance, but for lower-income borrowers, the FHFA’s new initiative just may be worth the wait.

With the guaranteed rate cut, reduced monthly payment, and waived fees, the savings could be significant.

If you’re worried about interest rates rising, you could consider applying for your refinance now and choosing an extended rate lock. This would allow you to lock in today’s historically low rates as you wait for summer to roll around.

You can also speak to a loan officer or mortgage broker for more specific advice. They can guide you on the best move for your financial situation.


Refinances- contact Betty Rauch    954.410.1960   Apply.SFL

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