Talking about mortgage applications increasing and rates decreasing, the truth about what it takes to get a mortgage, a cracked block on the economic growth engine, AI running the economy and more!
Mortgage Applications Increase, Rates Decrease (Mostly)
Mortgage applications increased 1.5% from one week earlier
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to 4.28% from 4.34%, with points increasing to 0.38 from 0.31 (including the origination fee) for 80% loan-to-value ratio (LTV) loans
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $424,100) remained unchanged at 4.24%, with points increasing to 0.28 from 0.24 (including the origination fee) for 80% LTV loans
The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.51% from 3.57%, with points decreasing to 0.35 from 0.38 (including the origination fee) for 80 percent LTV loans
Wow! We have heard that mortgage rates are going to rise in 2017 but it could be that this will NOT happen as Treasury yields are sinking:
Treasury yields are plunging as traders rush for safety amid renewed uncertainty surrounding geopolitical tensions in the Middle East and on the Korean peninsula. Aggressive buying has yields down as much as 7 basis points in the belly of the curve, and testing their recent lows.
This means that interest rates should decrease! But maybe you are worried that you don’t have enough down payment or that your credit score isn’t high enough to buy a home…
You May Be WRONG About the Down Payment and Credit Score Needed to Buy a House
Fannie Mae recently wrote an article that revealed that only 5 to 16% of respondents know what it really takes to qualify for a mortgage:
Do You Need 20% Down Payment to Buy a Home?
Fannie Mae’s study showed that people overestimate how much down payment they need to be qualified for a mortgage. According to the article, 76% of Americans either don’t know or are wrong about the minimum amount of down payment needed to get a mortgage!
Quite a few people think that they must have a minimum of 20% down to buy a house. The truth is some lenders in fact allow home buyers to put down only 3%.
If you are having a tough time saving a down payment, you are not alone! According to a recent Zillow report:
- Saving for a down payment was a barrier to homeownership for more than two-thirds of renters
- 63% of renters said they are confident they will be able to afford a home someday
- 25% of renters say they plan on buying in the next three to five years
- 66% of renters believe owning a home is necessary to live The American Dream
- 72% of renters believe owning a home increases their standing in the local community
I wonder if the 2/3 of renters they surveyed would be surprised to out they may already have enough money saved to buy a home! The chart below that shows how much down payment Millennials who recently purchased a home actually had (according to Digital Risk):
I imagine some of you are shocked to find out that over 64% were able to buy a house with less than 20% down payment. Even more shocking is that almost 44% bought a home with less than 10% down!
If you decide that putting less than 20% down is the right choice for you, it means you will be paying mortgage insurance. You may want to read Mortgage Insurance: What It Is and Why You Must Pay For It
How Good Does Your Credit Have to Be to Buy a Home?
This study also showed that 59% either don’t know or are wrong about the credit score needed to qualify for a mortgage. Most people still think a ‘good’ credit score is higher than 780.
But if we look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans, we see people are buying homes with much lower credit scores! As the chart below shows, almost 55% of approved mortgages had a credit score between 600-749.
I hope this will clear up some common misconceptions about the credit score and down payment requirements.
Ed DeMarco to Lead FSR’s Housing Policy Council
The Financial Services Roundtable (FSR) announced that former Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco will join FSR’s Housing Policy Council (HPC) as President effective June 1, 2017.
From 2009 to 2014, DeMarco served as Acting Director of the Federal Housing Finance Agency (FHFA), the conservator for Fannie Mae and Freddie Mac and regulator of those companies and the Federal Home Loan Banks. He is a nationally respected thought leader and was previously named Housing Wire magazine’s Person of the Year for his efforts impacting housing policy and the industry landscape.
I may have been critical of DeMarco at times and did not always agree with his decisions. But over all, he did a decent job considering he was handed a flaming bag of poo…
Where’s the growth going to come from as the dominant generation makes less, borrows less, spends less, saves more and turns away from long commutes, malls and suburban living and abandons the worship of private vehicles?
Where’s the growth going to come from as the dominant generation makes less, borrows less, spends less, saves more and turns away from long commutes, malls and suburban living and abandons the worship of private vehicles? Toss in the convergence of technology (i.e. a mobile phone does everything) and the answer is growth is being replaced by DeGrowth.
Tough questions and sadly, there probably are not any easy answers.
The architect of the world wide web Sir Tim Berners-Lee today talked about some of his concerns for the internet over the coming years, including a nightmarish scenario where artificial intelligence (AI) could become the new ‘masters of the universe’ by creating and running their own companies.
So when AI starts to make decisions such as who gets a mortgage, that’s a big one. Or which companies to acquire and when AI starts creating its own companies, creating holding companies, generating new versions of itself to run these companies.
So you have survival of the fittest going on between these AI companies until you reach the point where you wonder if it becomes possible to understand how to ensure they are being fair, and how do you describe to a computer what that means anyway?
Interesting and very nightmarish. If so many banks and Wall Streeters are already acting without any ethics or morals, do we want to have a heartless, soulless computer start running them?
Jamie Woodwell, MBA’s Vice President for Commercial Real Estate Research:
Last year was a strong year for commercial real estate finance. For originations, 2016 was the third highest year on record, after 2007 and 2015. Borrowing and lending backed by multifamily properties made up the largest share of the market, and Fannie Mae and Freddie Mac drove much of that activity.
The post-election rise in interest rates has taken a bit of wind out of the sails of the transactions’ market in the first quarter of 2017. The degree to which it and other potential market changes- such as tax reform proposals, general economic growth, foreign investment, and consumer confidence- will affect borrowing and lending in 2017 is still to be seen.
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