Tag Archives: mortgage news

New Mortgage Rules

Some Builders Like New Mortgage Rules, But Toll Calls Them “Dumb

A Pulte home being built in Phoenix.
Getty Images

Some home builders are heralding federal regulators’ move this week to ease mortgage-qualification standards  as a key to reviving the entry-level market but at least one is panning it as a return to dangerous lending.

The Federal Housing Finance Agency indicated this week it will expand mortgage availability with changes such as allowing borrowers to make a down payment of 3% of a loan’s value rather than the typical 20% for a high-quality mortgage.

On Thursday, two national builders reporting quarterly results touted the change as key to bringing first-time buyers back into the market. First-time buyers accounted for an average of 29% of new home sales from 2001 to 2011, according to the National Association of Home Builders. But this year that figure has dropped to an estimated 16% , because of tepid job and wage growth, mounting student debt and tight lending standards.

“I don’t think anybody is a proponent for going back to what happened in 2006 or 2007 at all, but a little common sense goes a long way,” said Larry Nicholson, chief executive of builder Ryland Group Inc., in a conference call with investors Thursday, adding, “I do think it helps the entry-level buyer with the 97% (loan-to-value) program. I think that will get some people off the fence.”

Richard Dugas, CEO of builder PulteGroup Inc., called the proposed changes “a positive statement” during his quarterly conference call with investors on Thursday. “Over time, as some of these ideas get put into practice, it certainly has the potential to affect activity, particularly for the entry-level category,” Mr. Dugas said.

But a different view was expressed Wednesday by Robert Toll, founder and executive chairman of luxury home builder Toll Brothers Inc., during remarks at a Urban Land Institute conferencein New York. He called the proposed loosening of credit standards “a really dumb-ass idea.”

“Yeah, we have a slow recovery, but it appears to be going to continue,” Mr. Toll said, adding, “Why do we want to go do what got us into this problem in the first place? … Three percent down doesn’t make any sense.”

Mr. Toll concluded that lenders have required a 20% down payment on top-rated mortgages for decades “and we had a hell of a housing program.”

Mr. Toll has a little less at risk than do other homebuilders. His company caters to affluent buyers, selling homes at an average price of $717,000. Pulte and Ryland, by contrast, serve more entry-level buyers than Toll, though they sell to others as well.

Quarterly results released by Pulte and Ryland on Thursday reflected a new-home market that remains stuck between neutral and slow growth. Pulte reported inking 3,779 sales contracts in its third quarter, flat from the year-ago period when analysts expected a gain of 5%. Ryland posted a 7.2% increase in orders to 1,707 when analysts expected a double-digit gain.

Ryland’s average selling price registered $331,000, up 11.1% from a year earlier after gains in the high teen percentages earlier in 2014, according to Raymond James & Associates analyst Buck Horne.

Toll, for its part, reported in September a 6% decline in orders in its latest quarter, which ended July 31.

In It for the Short Term

In It for the Short Term

Wealthy borrowers are drawn to loans with repayment periods of 10, 15 or 20 years


Jan. 30, 2014 8:46 p.m. ET


Affluent borrowers are falling out of love with long-term loans.

More wealthy borrowers are ditching the 30-year mortgage in favor of shorter repayment periods. The reason: lower rates that can save borrowers thousands of dollars in interest over the life of the loan.

Lenders say much of this demand is for refinancing. Rather than restarting the clock on a new 30-year mortgage, existing borrowers may be able to keep a similar monthly payment with a lower rate on a shorter-term jumbo.

Home buyers are also interested. As mortgage rates rise, affluent borrowers face a dilemma: sign up for a costlier loan or forget financing and pay all cash for the home. The latter option means giving up attractive tax benefits; borrowers can usually deduct interest payments on up to $1 million of mortgage debt.

A quicker repayment period provides a middle-ground solution. Affluent borrowers can tap into tax benefits while paying less in interest on the mortgage. They also have the means to handle the larger monthly payments that often result from squeezing a mortgage into a shorter term.

Izhar Cohen

While still high, demand for 30-year mortgages has been dropping. They accounted for 90.3% of private mortgages—those that lenders tend to keep on their books and which are comprised mostly of jumbos—that were originated during the first 11 months of 2013. That’s slightly lower than the same period a year prior and the lowest figure in the past seven years, according to CoreLogicCLGX -1.64% a real-estate analytics firm.

Meanwhile, shorter-term mortgages have been rising: 15-year mortgages accounted for 9.1% of private mortgage originations during the first 11 months of 2013, up from 8.9% during the same period a year earlier. That is the highest level in the past seven years.

To a large extent, the move away from the 30-year loan is a rate play. When rates were at record lows, borrowers could stash the cash they didn’t put into the home in other investments and earn a higher return than the interest they were paying out on their 30-year mortgage.

But as mortgage rates rise, it is harder to find those investments—especially for borrowers who sign up for 30-year mortgages, which typically have the highest rates. Rates on mortgages with a 20-year or shorter period, while rising, can be low enough to make this arbitrage possible.

“It’s a recent phenomenon,” says Mike McPartland, head of investment finance for Citi Private Bank in North America. “If clients notice distinct discounts for taking a shorter product… and if it suits their strategy, they’re going to opt into it.”

Rates on 30-year fixed-rate jumbo mortgages, which exceed $417,000 in most parts of the country and $625,500 in pricier housing markets like New York, averaged 4.56% during the week ending Jan. 24, while 15-year jumbo fixed rates averaged 3.76%, according to mortgage-info website HSH.com. That spread is larger than the same week one and two years prior.

Other repayment options are popping up as well. Wells Fargo WFC -1.54% rolled out pricing for 10- and 20-year repayment periods over the past couple of years. PNC Bank says affluent borrowers have expressed interest in these loans over the past few months.

In general, with shorter-term loans, borrowers stand to get rates that are from one-quarter to more than one percentage point lower than the 30-year mortgage. The smaller the repayment period, the larger that difference.

For jumbo borrowers, such a rate break results in significant savings. For instance, at the Princeton, N.J., office of Gateway Funding Diversified Mortgage Services, a mortgage banking firm, the starting rate on a 30-year fixed-rate jumbo is 4.5%, while the starting rate on a 10-year jumbo is about 3.4%. Over the life of a $1.5 million mortgage, borrowers will pay more than $1.2 million in interest with a 30-year period, compared with roughly $271,000 in interest with a 10-year term.

Gateway Funding says roughly 5% to 10% of the jumbo mortgages it originated in its Princeton office last year had 20-year repayment periods, and another 5% to 10% had 10-year terms.

Middlesex Savings Bank, a community bank based in Natick, Mass., says 20-year mortgages accounted for about 30% of their jumbo originations last year.

Lenders say that some of this demand is coming from baby boomers who are turning to shorter repayments to pay off their mortgage before entering their golden years.

Here are a few other issues to consider:

• Choose your term: Some banks will write almost any repayment period that a qualifying borrower requests.

• Watch out for rates: Some banks offer the same rate to every borrower who gets a specific repayment period, regardless of their income or credit, which could result in a more creditworthy borrower paying more than he or she would elsewhere.

Time to Buy- “Mortgage rates fall for second week in a row”!

Mortgage rates fall for second week in a row


(Jonathan Alcorn/Bloomberg)

(Jonathan Alcorn/Bloomberg)

Mortgage rates fell for the second week in a row, according to the latest data released Thursday by Freddie Mac.

The 30-year fixed-rate average sank to 4.39 percent with an average 0.7 point, its lowest level since late November. It was 4.41 percent a week ago and 3.53 percent a year ago.

The 15-year fixed-rate average edged down to 3.45 percent with an average 0.7 point. It was 3.45 percent a week ago and 2.81 percent a week ago. The 15-year fixed rate was below 3.5 percent for only the second time in the past six weeks.

Hybrid adjustable rate mortgages were mixed. The five-year ARM average rose to 3.15 percent with an average 0.5 point. It was 3.1 percent a week ago and 2.7 percent a year ago.

The one-year ARM average moved for the first time in four weeks, dropping to 2.54 percent with an average 0.5 point.

“Mortgage rates were flat to down a little this week amid reports that inflation remains subdued,” Frank E. Nothaft, Freddie Mac vice president and chief economist, said in a statement. “The Consumer Price Index was up to 0.3 percent in December after being unchanged in November. For the year as a whole, consumer prices rose just 1.5 percent in 2013.”

Meanwhile, spurred by falling interest rates, mortgage applications showed an uptick last week, according to the latest data from the Mortgage Bankers Association.

The Market Composite Index, a measure of total loan application volume, rose 4.7 percent. The Refinance index grew 10 percent, while the Purchase Index increased 2 percent.

The refinance share of mortgage activity rose to its highest level in two months, accounting for 64 percent of all applications.

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