Mortgage California Blog

Mortgage News Roundup

July 25th, 2013

House with money over whiteMortgage News Roundup

We hope your week is going great! In today’s blog post, we’ll talk about how new home sales were up in June, the number of young (25-34) buyers is also on the rise, and the Federal Reserve and Federal Deposit Insurance Corp., want to loosen a proposed requirement that banks retain a portion of the mortgage securities they sell to investors.

New home sales up 8.3% in June

The Commerce Department reported that new home sales sales rose 8.3% to a seasonally adjusted annual rate of 497,000, the best pace since May 2008. May’s sales rate was also revised lower to 459,000.

“The jump in new home sales is great news but whether it was due to growing demand or fears of even higher mortgage rates is not clear,” said Joel Naroff, chief economist of Naroff Economic Advisors. “It’s too early to say that higher rates will not slow the housing market,” he said.

This means that people who were thinking of buying a home have started jumping in with both feet. It could be that they were financially ready, that there were more new homes on the market, or that people were more motivated due to the increase in the average interest rate.

Per USA Today:

U.S. homebuilders are growing increasingly confident about their business amid a still tight supply of homes for sale and a dwindling inventory of distressed properties on the market.

However, existing home sales have decreased about 1%, and mortgage applications decreased 1.2% from the prior week.

Freddie Mac will release its weekly mortgage rate survey today.

The Rise of the Young Buyer

Yahoo! Finance reports that younger buyers don’t trust the stock market, and believe that purchasing real estate is the better investment.

In recent years, low interest rates coupled with lower real-estate prices had also made it easier for people in their 20s and early 30s—whom demographers refer to as “Generation Y” or “millennials”—to buy.

In the last two months, half the folks I sold homes to were young entrepreneurial types—and they were all buying homes for over a million dollars,” says Michael Rankin, a managing partner at TTR Sotheby’s International Realty in Washington, D.C. “A few years ago, that kind of buyer was invisible. We had young folks buying starter condos for a few hundred thousand dollars. But this new wave is skipping that step entirely and going right for the high-end home.”

And according to a new report issued by the National Association of Realtors, millennials now compose the second-largest group of recent home buyers, making up 28% of the pool. (“Generation X,” the age group just slightly older, ranks first.)

Some investment managers feel that this is a waste of their money. Their parents apparently feel otherwise, as they are often offering assistance to help their kids purchase a home that is more high end than the standard starter home. This will allow the young buyer to settle in and build up a sense of community as they go through the life stages of marriage and children. Plus, it will provide them with more equity when they retire if they choose to sell the home. And it allows the parents to pass money along rather then being taxed on it.

Easing of Mortgage Curb Weighed

The Wall Street Journal reported that the Feds want to go in the opposite direction when it comes to increasing regulations and restrictions for mortgages.  Three years ago, the Dodd-Frank regulations were passed to overhaul what many thought of as lax lending regulations leading to the collapse of the housing financial market.

There has been some concern that requirements would increase making new mortgages and refinances more difficult to obtain.

Critics said that banks and other issuers devised toxic securities by packaging subprime loans and other mortgages that had the highest change of default. To counter this problem, Dodd-Frank stipulated that issuers should retain 5% of all mortgage-backed securities issued without government backing.

The idea was to ensure that the firms had “skin in the game,” addressing problems that arose when lenders didn’t pay close attention to the quality of loans issued as securities so long as the bonds could receive triple-A ratings.

Now, regulators want to scrap that requirement, meaning that banks would have to retain 5% only of mortgages that allow borrowers to make “interest-only” payments or that don’t fully document a borrower’s ability to repay a mortgage—a much smaller portion of the market that includes the riskiest loan products that caused much of the crisis-time losses.

There is concern that the complexity of the new rules would increase closing costs for lenders and consumers because mortgages that didn’t qualify would carry higher interest rates.

If you have questions about mortgage rates or closing costs, ask your loan officer to explain them. And if you’re starting to look into pre-qualifying for a mortgage, contact a reputable mortgage loan officer to find out your options. They study the latest rates and current market fluctuations to ensure that you can make the best possible decision.

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