Coming with little surprise, the Federal Reserve increased its benchmark interest rate a quarter point amid rising confidence that the economy is booming.
The move clearly telegraphed in advance by Yellen and company and widely anticipated by financial markets, takes the overnight funds rate to a target range of 0.75 percent to 1 percent and sets the Fed on a likely path of regular hikes ahead.
Surprisingly, the expected rate-hike pushed government bond yields lower while stocks moved higher.
Mortgages are also expected to move higher.
“There are two reasons why a Fed funds rate hike, and likely increase in mortgage rates, will actually be good for the spring housing market,” says Ten-X EVP Rick Sharga. “First, an effect on consumer psychology: potential homebuyers will get off the fence and into the market, in order to buy a house before rates go any higher.”
“Second, says Sharga, lenders will very likely loosen some of the ridiculously tight lending standards that have prevented millions of credit-worthy borrowers from getting mortgages. This will happen in part just due to higher rates, which will provide a bit of a cushion for lenders to take on a little more risk. And higher rates will also drastically reduce the number of refinance loans being issued, which lenders will try to offset by doing more purchase loans.”
The Collingwood Group Chairman Tim Rood says, “As we saw with the market’s reaction to the ‘Taper Tantrum’ in 2013, a sudden increase in rates has a tendency to impact home price appreciation rates but doesn’t substantially impact home sales rates, but this increase has been factored-in for a long while. Furthermore, Ben Carson, President Trump’s new HUD Secretary, is committed to settling the nerves of FHA lenders who have been fearful to use the program for the very purpose that it exists – giving low to moderate income Americans and minority borrowers a chance to buy their first home at market rates.Increased access to credit for previously underserved families will buoy the home sales market this Spring if the inventory is there to meet demand.”
(Collingwood Group Chmn Tim Rood joins FBN’s Cavuto this Friday 3/17 at 12 PM ET)
With a higher rate already baked into the market, investors were looking for clues about just how aggressive the central bank will be down the road. The market currently expects the Fed to hike two more times this year, which was in line with the Fed’s projections from December 2016.
Higher and Higher
The volume of mortgage applications rose last week even as some interest rates reached their highest levels in nearly three years. The Mortgage Bankers Association said that its Market Composite Index, viewed on a seasonally adjusted basis, was up 3.1 percent during the week ended March 10. The index rose 4.0 percent compared to the previous week when unadjusted.
Applications for both refinancing and purchasing contributed to the increase. The Refinance Index was up 4.0 percent from the week ended March 3. The seasonally adjusted Purchase Index gained 2.0 percent while the unadjusted Purchase Index increased 3 percent. The unadjusted Purchase Index was 6 percent higher than the same week in 2015.
- Jumbo 30-year FRM, loans with balances greater than $424,100, had the highest average rate since April 2014 as well, rising to 4.44 percent from 4.27 percent. Points increased to 0.28 from 0.25.
- The contract rate for 30-year FRM backed by the FHA averaged 4.29 percent with 039 point. The previous week the rate was 4.18 percent with 0.32 point. The contract rate was at its highest level since January 2014.
- The average contract interest rate for 15-year FRM was 3.66 percent, up 9 basis points week-over-week. Points increased to 0.45 from 0.36.
- The average contract interest rate for 5/1 ARMs decreased to 3.45 percent from 3.48 percent, with points increasing to 0.24 from 0.20. The effective rate decreased.
Give Home Buyers More Credit
One of the standard measures for credit, the FICO score, is about to be recalculated. The changes in the methodology for providing FICO scores involves reducing the weight of medical bills, tax liens, and civil judgments. These changes could affect as many as 12 million Americans.
While removing adverse information would benefit debtors, critics worry that changing the scores could provide a false image of creditworthiness. The FICO score is used to determine terms for loans of every type – ranging from car loans to home loans. It is an indicator of the borrower’s ability to repay a debt. In removing information about health expenses and past defaults, credit agencies may be painting a rosier picture of borrowers than is deserved.
“Lenders are understandably concerned, especially mortgage lenders who have concerns about loan repurchases,” said Barrett Burns, President and CEO of VantageScore Solutions. “We tested our VantageScore 3.0 model and it’s predictive prowess holds true notwithstanding these changes, however some consumers on the margins of score cut-offs for eligibility might be impacted which means lenders need to carefully validate their models and upgrade to the most up to date models to ensure they are making the right underwriting decisions moving forward.”
All 3 credit agencies, Equifax, Experian, and TransUnion are making these changes. Some changes have already been underway since July of 2016. The changes have been spurred by regulatory actions for increasing the accuracy of reporting in credit reports. Groups like the Consumer Financial Protection Bureau have noted that inaccurate information can affect job applicants and housing choice. The changes made to the credit scoring methodology are part of an implementation of new guidelines set forth for credit agencies. The National Consumer Assistance Plan was brokered in 2015 through a settlement with 31 state attorney generals. The credit agencies were given 3 years to rollout all of the changes advised through the new policy.
Home Down-Payments Higher, But…
First the good news: down payments among first-time homebuyers are getting slightly bigger.
Now the not-so-good news: that’s not saying much.
In 2009, when the National Association of Realtors started tracking such data in its monthly Realtors Confidence Index, nearly three-quarters of first-timers made down payments of between 0% and 6% of the purchase price. In February, only 65% did.
By that metric, any down payment not in the 0-6% range is bigger, and therefore probably better both for the system and for most individual buyers. But just barely: the median among first-timers in 2016 was 6%, according to separate data NAR tracks. Among all buyers, the median is 10%.
NAR notes that mortgages backed by the government, including the Federal Housing Administration and Fannie Mae and Freddie Mac, have made features like low-down-payment lending more available in order to attract more first-time buyers into the market.
But those efforts have been “modest,” NAR noted, in part because most would-be buyers aren’t aware they exist.
What’s more, they wrote, “some buyers may want to save for a bigger down payment to meet underwriting standards (e.g., debt-to-income ratios, loan-to-value ratios), save on mortgage insurance, or get a lower interest rate.”
There are different ways to think about down payments being lower now than in the past. Many analysts believe mortgage lending is so tight that it’s too restrictive – meaning that anyone who qualifies poses almost no credit risk.
But some also worry that smaller upfront equity stakes mean bigger monthly payments, leaving homeowners less discretionary buying power.
read more: http://www.marketwatch.com/story/down-payments-for-first-time-homebuyers-still-in-the-single-digits-2017-03-13
Wall Street Bets on Tax Cuts as Affordable Housing Pays the Price
Wall Street is betting on corporate tax reform, and the wager is having an unforeseen impact on one market before Congress has even taken up a bill.
Investors began losing their appetite for federal low-income housing tax credits immediately after Election Day, when the Republican sweep of the White House and Congress suddenly made broad reform a real possibility. Now, fewer companies are willing to pay top dollar for the credits, which are sold to finance affordable housing and urban renewal.
Wall Street’s optimism is causing pain from Oregon to Massachusetts as development projects face unexpected funding shortfalls. In Milwaukee, a $1 tax credit was worth more than a dollar to investors before the election. Now that same credit is worth about 93 cents, creating a $515,000 financing gap on a long-planned low-income housing project.
“We were getting over a dollar for those credits, then they kept going down starting around the election,” said Michael Goldberg, executive director of the nonprofit Heartland Alliance, an anti-poverty group trying to convert an old Milwaukee hospital into 60 apartments. “For a while it had dropped to about 95 cents. Currently, the best offer we have is about 93 cents. It’s really a dramatic shift for nothing really happening.”
The low-income housing tax credit, signed into law by President Ronald Reagan in 1986, encourages banks and other companies to invest in inexpensive rental apartments and houses that aren’t profitable enough to be built using typical financing.
The federal subsidy allocates $2.35 in tax credits for every state resident. State agencies dole out the credits to developers who usually sell them to finance low-rent projects. The program creates about 100,000 affordable housing units a year, according to the National Council of State Housing Agencies. This year, it will cost taxpayers about $8 billion in federal revenue.
Banks and other companies buy housing and other types of federal tax credits to reduce what they owe to the Internal Revenue Service. A Republican tax reform blueprint would preserve the low-income housing tax credit, but it also would lower the corporate tax rate from 35 percent to a flat 20 percent, making the credits less valuable. Donald Trump campaigned for president on a 15 percent corporate rate.
read more: http://www.politico.com/story/2017/03/wall-street-bets-on-tax-cuts-as-affordable-housing-pays-the-price-236035
Kushners’ Tower Trouble
One day after Bloomberg News reported that Chinese company Anbang was investing $400 million in President Donald Trump’s senior advisor and son-in-law Jared Kushner’s 666 Fifth Ave. office tower, the White House press secretary defended the transaction. “Jared went through extraordinary lengths” to comply with conflict-of-interest rules, Sean Spicer said during a press conference, as reported in the New York Times. A spokesman for Anbang said, “there is no investment from Anbang for this deal.” “If signed, the potential agreement would create a financial marriage of two politically powerful families in the world’s two biggest economies, but it would also present the possibility of glaring conflicts of interest. The Kushner family, owners of the tower, would reap a financial windfall courtesy of a Chinese company, even as Jared Kushner, a senior adviser to Mr. Trump as well as his son-in-law, helps oversee American foreign policy,” the Times writes.
Real Estate Brokers Commissions Negotiated
A majority of sellers last year tried to negotiate their listing agent’s commission to a lower price, according to a survey of 3,352 homebuyers and sellers across 11 major metropolitan markets conducted in December 2016 by SurveyGizmo and commissioned by Redfin.
Fifty-seven percent of sellers last year attempted to negotiate their agent’s commission, up from 52 percent in June 2016. The trend was partly driven by Millennial sellers, 66 percent of whom said in December they had attempted to negotiate with their agent.
Savings were prevalent among homebuyers, too. Nearly half (49 percent) said they got a refund, closing-cost contribution or other consideration from their agent worth $100 or more, up from 46 percent who said the same in June.
Following are six major findings:
- Most sellers are negotiating for lower commissions.
- Nearly three out of four sellers checked their online home-value estimates at least weekly before deciding to list their home for sale. One in five checked daily or near daily.
- Rising mortgage interest rates haven’t deterred most homebuyers.
- The top economic concerns are income inequality and affordable housing.
- Many homebuyers, especially Millennials, are hesitant to move to an area where people tend to have different political views from their own.
- Nearly half of minority homebuyers felt potential discrimination because of their race.
“Millennials are more data savvy than previous generations and naturally comfortable taking advantage of the relatively recent data transparency and technological innovations in the industry,” said Nela Richardson, Redfin chief economist. “This makes them more informed than any cohort the housing market has ever seen, and partly because of that, more willing to negotiate fees. Millennials’ hesitance to move to places where people have different political views suggests that our already deeply divided nation could become even more geographically segregated by ideology. As Millennials age into peak home-buying years, we will continue to see their preferences reflected not only in how homes are bought and sold, but also the makeup of cities and neighborhoods across the country. This carries big implications for the future of our political parties and electoral outcomes.”
#Fintech: Divisive ‘Bitcoin Unlimited’ Solution Crashes After Bug Discovered
A controversial plan to fix bitcoin’s network congestion suffered a setback after attackers used a newly-discovered bug to crash the software.
Bitcoin Unlimited, which had been attracting support from the digital currency’s biggest miners, was attacked after developers brought the bug to light. The numbers of “nodes” hosting Unlimited fell to about 300 from 800 following the attacks, the lowest level since October, according to website coin.dance which tracks industry data.
Nodes make up the core of bitcoin’s infrastructure. Those with mining abilities shoulder a significant workload of verifying transactions with specialized computers, while non-mining nodes independently track those transactions and effectively ensure the entire network is functioning as expected. By running a certain version of the software, such as Unlimited, each node can signal how they want bitcoin to evolve.
While the exploit was quickly patched, it is validation to critics who say Unlimited programmers lack the experience to fix bitcoin’s complicated congestion issue. Unlimited had in recent weeks won the backing of influential miners, as some decided to give up on reaching a community consensus after more than two years of discussion. The bug raises uncertainty about whether miners will follow through on their support.
The Unlimited side wants to remove a pre-programmed cap on the amount of data bitcoin’s network can process, which they argue can end congestion. Opponents say removing the limit would put too much power in the hands of large organizations who have better resources to process large amounts of data, potentially undermining bitcoin’s independence from governments and global banks. They’ve offered to ease the congestion with an approach called SegWit, which uses a slightly different method to verify transactions.
read more: https://www.bloomberg.com/news/articles/2017-03-15/divisive-bitcoin-unlimited-solution-crashes-after-bug-exploit
Somebody Bought a Used House from this Car Salesman for $43M!
Alan Potamkin, the car-dealership titan whose last name has long appeared on Manhattan billboards, has sold a massive estate in Coral Gables, Fla., for $43.7 million.
That sky-high price makes this deal the most expensive sale to close so far this year in Miami-Dade County, notes the Real Deal, which first broke the news.
The 3.6-acre waterfront estate at 1 Casuarina Concourse first came to market in May 2015 for an even higher $67 million, reports the Real Deal; that listing included a 20,862-square-foot mansion as well as an adjacent lot. In 2016, Potamkin and his psychologist wife, Brigitt Rok Potamkin listed the mansion only for $49 million — with an option to buy the lot.
This sale, the Real Deal notes, appears to encompass the entire property — the home and what is a 157,138-square-foot lot with 937 feet of water frontage on Biscayne Bay.
The three-level, Mediterranean-inspired house was built in 2000 and comes with nine bedrooms, 10 full bathrooms and five half-bathrooms. Packed with amenities, it includes separate chef’s and family kitchens, a wine room with space for 1,500 bottles, two built-in saltwater aquariums, an aviary and — for ease of getting around — an elevator.