Facts You Should Know About Working With a Mortgage Broker

After narrowing the search for your dream home, the next steps are to buy the house and get those keys in your hands. However, the process of buying a house can be a confusing and trying experience. Thankfully, you can hire a mortgage broker such as Courtier Hypothecaire to walk you through the process. With that said, people who have never used mortgage brokers before might be a bit confused as to what they do.

Mortgage Brokers Act as the Middleman

 

The leading question that people have about mortgage brokers is, “What is a mortgage broker?” To be fair, if you’ve never used mortgage brokers before, it only stands to reason that you might not know what they do. Their job is to act as the middlemen between potential lenders and customers.

 

Mortgage brokers work with several different banks to find the best mortgage lender to fit your needs. This includes looking for the lowest rates and competitive terms. Since this process can be time-consuming, it’s often helpful for wannabe homeowners to use mortgage broker services.

 

Mortgage Brokers Charge a Commission

 

Just like most sales professionals, mortgage brokers have to charge a commission to make money. The commission rate varies between individuals, but the general rate is 1 percent of the loan amount. For example, a mortgage broker who charges a 1 percent commission would earn $4,000 from a $400,000 mortgage loan.

 

Sometimes this commission is paid at closing, and other times you can work out a no-cost loan in which the lender pays the broker fees. While having the lender pay the fee is helpful, it usually results in a higher interest rate on the loan. You enjoy a lower out-of-pocket expense for a higher payout later.

 

Differences Between a Mortgage Broker and a Loan Officer

 

While some people think that a mortgage broker and loan officer are the same, they’re actually completely different. In general, a loan officer is employed by a mortgage lender. This means that these individuals get paid a set salary for writing loans.

 

Mortgage brokers, on the other hand, are completely independent or work with a mortgage broker firm. While they work closely with lenders, they don’t work directly for them. This means that they have to rely completely on the money that they earn via commission. The larger the loan amount, the more money they earn.

 

Benefits of a Mortgage Broker

 

The first and most important benefit of hiring mortgage brokers is that they act as your personal concierge. Unlike loan officers, a mortgage broker doesn’t work for lenders but works independently on your behalf. This is why brokers tend to fight for better mortgage rates and more favorable terms than loan officers.

 

Also, hiring a mortgage broker will save you a lot of time. It can take many hours to apply for mortgage loans. Even after you apply for a loan, there’s still a lot of back-and-forth communication during the underwriting process. Hiring a mortgage broker can ensure that you don’t have to handle all of these nagging details.

 

How to Choose a Mortgage Broker

 

While there are many ways to go about hiring a mortgage broker, one way is to get referrals from friends and family members who have used mortgage brokers in the past. Since they work on commission, they rely heavily on referrals. A mortgage broker who did a good job for a family member will likely strive to do a good job for you so that they can get even more referrals.

 

Overall, most people save time and money when they hire mortgage brokers. They do the legwork for you and make buying a new home easier. If it’s the first time that you’re buying a home, you have a lot to benefit from hiring mortgage brokers. They can help ensure that you don’t get ripped off in the process or leave out a critical step while buying a home.

Loan packages leap 9.three% as charges fall

Final week’s anemic jobs document for can also pushed interest rates lower, but the choice for mortgages become already on the upward push.

A 'Sold' sign stands outside a home under construction in a housing development in Peoria, Illinois.

Loan application extent jumped 9.three percent remaining week from the previous week, in step with the mortgage Bankers affiliation. The effects have been seasonally adjusted, such as for the Memorial Day holiday. The volume may have been making up for a massive drop two weeks in the past, or reacting to a mild drop in hobby rates.

Applications to refinance a domestic loan accelerated 7 percentage, seasonally adjusted, from the previous week, and are almost 14 percent better than 365 days ago. hobby costs had been better at the moment ultimate 12 months. loan programs to purchase a domestic did jump 12 percent for the week, however they’re down 19 percent in the beyond 4 weeks and down 6 percent from the identical week twelve months ago. Given the excessive demand for housing, purchase programs need to be better, but a loss of cheap houses on the market is in all likelihood retaining quantity low.

“Given the vulnerable employment document for may additionally, we think it’s miles not likely that the Fed will raise charges in June,” stated Mike Fratantoni, chief economist of the MBA. “but, as different monetary data are pointing to continued monetary increase, we do count on that they will boom rates following their July meeting.”

The internet percentage of americans who say that now is a superb time to shop for a residence fell to 29 percent in may also on a monthly survey with the aid of loan large Fannie Mae. that is an all-time survey low for the second one- immediately month and comes in spite of fewer human beings saying they may be frightened of dropping their jobs and greater are reporting a better household profits than three hundred and sixty five days in the past.

“Persevered home fee appreciation has been squeezing housing affordability, using a two-year downward fashion in the share of customers who suppose it’s a great time to buy a domestic,” stated Doug Duncan, senior vp and leader economist at Fannie Mae. “The modern-day low mortgage price environment has helped ease this strain, and less than half of of customers assume quotes to move up in the subsequent yr. at the same time as the may also growth in income growth perceptions ought to provide in addition assist to prospective homebuyers because the spring/summer time home buying season gains momentum, the effect may be muted through may’s discouraging jobs record.”

The average settlement interest charge for 30-year constant-price mortgages with conforming mortgage balances ($417,000 or less) decreased to three.eighty three percent from 3.eighty five percentage, with factors reducing to 0.33 from 0.36 (inclusive of the origination price) for eighty percentage loan-to-fee ratio loans, according to the MBA.

“While quotes had been close to those 3-year lows, we have only visible them dip decrease in short — and normally now not through that a good deal. which means locking is never a horrific concept at modern-day stages,” wrote Matthew Graham, chief running officer of mortgage news day by day. “nevertheless, risk-takers could also discover justification to go with the flow based on the wish that ecu markets maintain to pull US interest charges decrease as the european crucial bank (ECB) starts offevolved a new bond-shopping for program tomorrow.”

For borrowers who choose to float, Graham recommends putting a restriction as to how much costs would ought to rise before they had lock to keep away from further losses.

Why Banks Are Dumping Fannie, Freddie Debt

The largest banks are dumping their holdings of Fannie Mae and Freddie Mac debt, and it’s contagious.

It seems small banks had been doing the same component.

GSE bonds in any respect U.S. banks (apart from loan-subsidized securities) fell from $213.five billion, or 1.47% of general belongings, inside the third sector of 2013, to $152.3 billion, or zero.ninety three%, in this year’s first region, in line with statistics compiled by BankRegData. this is the lowest degree in the beyond decade.

big banks’ motivation is straightforward to pinpoint: the need to comply with latest federal liquidity policies which might be supposed to enhance big economic institutions’ odds of withstanding the subsequent monetary disaster. what’s riding network banks to observe their lead is murkier seeing that the ones regulations do not follow to small gamers.

yet the impact on all banks is apparent. even though the bond income are lessening systemic hazard in the eyes of regulators, they are cutting into earnings at a time whilst banks are tough-pressed for increase. in the meantime, Fannie and Freddie could see the price of debt issuances upward thrust if the drop in demand from banks remains stated.

Fannie and Freddie debt traditionally has supplied better yields than other securities, but different factors have made them much less proper, stated Karen Shaw Petrou, handling partner of Federal economic Analytics.

because the passage of the liquidity coverage ratio requirement almost years in the past, many establishments have gradually unloaded ownership of debt duties issued by way of Fannie, Freddie and other government-backed organizations due to the way GSE debt is scored in the liquidity equation. The elements of challenge to banks include how the best of the responsibilities is judged, and their higher risk weighting, Petrou stated.

those considerations, blended with other new guidelines meant to prevent banks from being overly leveraged, imply “the capital value of [GSE] paper is normally higher,” she said.

GSE-issued duties receive only eighty% credit score as 86f68e4d402306ad3cd330d005134dac liquid assets inside the Fed’s liquidity insurance ratio, said Marty Mosby, an analyst at Vining Sparks. U.S. Treasuries, then again, get 100% credit.

Regulators in September 2014 accepted the LCR, which become designed to offer banks with enough liquid belongings to cowl a surprising investment disaster. the rule, written through federal regulators, is a more difficult version of the LCR evolved by way of the global Basel Committee.

the rule applies handiest to banks and financial institution maintaining agencies with at least $50 billion of assets; those above $250 billion of assets have to adhere to a fair harder rule.

a number of the biggest banks have therefore rushed to the exits. JPMorgan Chase held about $three.3 billion of GSE securities inside the third zone of 2013, but decreased its holdings to just $36 million in the first area.

financial institution of the usa and Capital One monetary maintain no GSE debt. The same is authentic for at least 30 other huge banks, along with the citizens financial group in windfall, R.I., and M&T financial institution in Buffalo, N.Y.

amongst banks with at least $50 billion in belongings, GSE-issued responsibilities made up approximately zero.36% of overall assets at March 31.

Smaller banks rely greater closely on GSE debt to generate yield. For banks with less than $50 million in belongings, they have been about 6.2% of general belongings. For those with belongings of $50 million to $99 million, they have been about five.eight%.

The shift out of GSE paper may have helped large banks meet liquidity requirements, however in some instances they have got harm returns. Wells Fargo’s go back on property “has been migrating downward for the reason that” the second sector of 2014 for some of reasons, such as the liquidity insurance ratio, Scott Siefers, an analyst at Sandler O’Neill, said in a Wednesday research note. Wells Fargo’s ROA has declined from 1.forty five% inside the second quarter of 2014 to 1.sixteen% on this year’s first region.

Even extra surprising, some smaller banks have also unloaded GSE debt regardless of the potential to lower yields and returns. as an instance, at some point of the primary zone the $1.6 billion-asset Moody Bancshares in Galveston, Texas, offered all of its $7.9 million in GSE bonds, and the $759 million-asset Wayne financial institution in Honesdale, Pa., unloaded its $9.2 million preserving. inside the 0.33 sector, the $814 million-asset First Federal bank of Louisiana in Lake Charles sold its entire $24.nine million function.

that is a case of smaller establishments taking a copycat technique to what the bigger banks are doing, stated Bob Mahoney, chief executive of the $1.9 billion-asset Belmont financial savings bank in Massachusetts.

“The asset thresholds do not suggest that a great deal,” Mahoney said. Belmont has no longer owned GSE-issued paper seeing that 2012. “Regulators start talking about these regulations in examinations, even at smaller banks. And it begins evolving right down to decrease-asset banks as a kind of first-class exercise.”

If a small financial institution is suffering with liquidity necessities, consisting of having too small a portion of its securities portfolio in coins or cash equivalents, it’d “shift to authorities bonds and out of Fannies and Freddies to win a few Brownie factors,” Mahoney stated.

Then there are some banks which have seen their GSE holdings disappear for reasons beyond their manipulate.

The $1.7 billion-asset Union County financial savings financial institution in Elizabeth, N.J., offered its complete $1.1 billion portfolio of Fannie Mae and Freddie Mac securities a while for the duration of the primary sector. Union County had held at least $1 billion of GSE debt in its securities portfolio for the reason that first area of 2013. The Fannie and Freddie bonds have been redeemable and the corporations known as the bank’s complete function all through the area, said Donald Sims, the financial institution’s CEO.

“It was now not some thing intentional on our component,” Sims stated.

Is this the end of HK’s stratospheric property price rises?

Residential buildings stand in the Choi Hung, front, and Kowloon Bay district of Hong Kong, China, on Tuesday, Aug. 25, 2015.

Hong Kong’s ever-climbing property prices have long made the city a global posterchild for unaffordable housing, but there are signs change may be afoot, if buyers would just believe it.

Hong Kong’s property prices have more than doubled since 2009, consistently ranking the city among the world’s most expensive property markets. But now, property prices are “quite vulnerable. It’s going up only because of a general consensus that it will go up,” Nicole Wong, an analyst at CLSA, said recently.

“In general, we are no longer in times of extremely tight supply,” she added, noting that the number of units under construction has risen sharply since 2011.

Read MoreWhat’s worrying Hong Kong’s wealthy right now

She estimates 15,000 to 18,000 saleable units will be completed over the next couple years, a 40 percent increase on 2013-15. Wong expects developers’ pricing power will take a hit, especially as the primary — or new development — market’s premium over the secondary, or resale, market has shrunk from around 40 percent to 5 percent.

Developers have stepped up incentives to buyers, a September Deutsche Bank report noted, adding that secondary transactions were seeing lower average selling prices, sometimes at below-market levels.

That’s likely to be just the sort of news the city’s chief executive, CY Leung, wants to hear.

In March, he told the Credit Suisse Asian Investors Conference in Hong Kong: “We need to break the backbone of the housing problem,” and cited plans to add 480,000 units over the next 10 years. The city is planning to target developments in outlying areas, such as Kowloon East and East Lantau, as well as land reclamation projects between Hong Kong and Lantau islands.

The cost of housing in the special administrative region of China has been a source of deep discontent even before Britain handed over the city to the mainland in 1997.

The government, sensing creeping public outrage, resorted to draconian measures a couple years ago, including doubling the stamp duty, or property transaction tax, on many buyers, mainly non-permanent residents, to cool the market. It also raised down payment requirements, in some cases to 60 percent of the sales price.

“For many years, Hong Kong had a housing demand-supply imbalance,” Paul Louie, a property analyst at Barclays, said recently. “Since [Leung’s] term began, we’ve seen the government be proactive in increasing land and housing supply in the market.”

Read MoreHK stocks: Between a rock and a hard place

Louie believes that based on the numbers, the supply-demand situation has reached equilibrium.

“In the minds of homebuyers, they still think there’s a shortage, but the numbers point to a different scenario,” he said. “Homebuyer psychology takes longer to reverse.”

Some expect a quick decline in prices. In a September 30 note, UBS forecast Hong Kong property prices would fall about 25-30 percent by the end of 2017, although that follows a 340 percent rise since 2003.

“This round of price reversals will be triggered by a deteriorating local economy,” Eva Lee, head of Hong Kong and China property research atUBS, said in emailed comments. “Price drops may come more gradually and over multiple years.”

One factor that may weigh is the currency, she said. Hong Kong’s dollaris pegged to the U.S. dollar, meaning its currency is strengthening even as most of its regional counterparts are tanking, making the special administrative region’s property more expensive for many potential buyers.

With the U.S. Federal Reserve widely expected to hike interest rates by the end of this year, that’s also likely to push up mortgage rates in Hong Kong, because the dollar peg means that monetary policy in the two countries is also linked.

To be sure, Hong Kong’s prices don’t show any signs of weakening just yet. The territory’s price index for July, the latest available, rose to 303.6, posting increases for 16 out of the previous 17 months.

Some don’t expect Hong Kong’s property will ever be anything but pricey.

Any price declines “might be just a short-lived respite as prices zigzag upwards,” said Alexander Karolik Shlaen, an economist and CEO of Panache Management, a luxury brands and real estate investment advisor.

He sees Hong Kong as a “super-tier” Chinese city. “Hong Kong is the most desired city for Chinese people,” he said, noting the mainland’s propensity for turning out millionaires and billionaires. “If just a few percent move to Hong Kong, it will drive the market for years to come.”

There’s some sign Chinese developers agree. In late September mainland-based Shimao Property beat local developers in a government land auction for a site in Kowloon Tong, the South China Morning Post reported. Shimao plans a luxury development on the site, the report said.

JPMorgan buys more mortgages from other lenders as market shrinks

JPMorgan Chase headquarters building

JPMorgan Chase, looking to stem falling revenue in its mortgage business as fewer Americans refinance, is increasingly buying loans from smaller lenders, a practice that competitors including Bank of America view as risky.

In the first half of 2015, the bank bought 62 percent of the $58 billion in home loans it added to its books, compared with 56 percent in 2014 and 37 percent in 2011.

While other big banks buy mortgages from other lenders, known as correspondents, JPMorgan has racked up the biggest increase among its peers in the proportion of loans it buys from others, according to data from trade publication Inside Mortgage Finance. JPMorgan is fighting for business in what has been a shrinking market.

According to the Mortgage Bankers Association, applications for U.S. home loans have fallen by about 25 percent since mid-January, when a temporary drop in rates spurred a small wave of refinancing. Since May 2013, when mortgage rates first started jumping amid fears the Federal Reserve would hike rates, application volume has fallen by more than 50 percent.

Fewer applications overall make it harder for JPMorgan to make as many loans directly to consumers in its bank branches. Still, JPMorgan’s willingness to buy loans from correspondent banks is a sign that banks are comfortable taking more risk in the mortgage market, nearly a decade after the housing bubble popped.

“As they gain more confidence about the environment, they go right back to the correspondent channel for more volume,” said banking analyst Charles Peabody of Portales Partners.

To be sure, Bank of America avoids the loans, because it doesn’t want to be exposed to bad decisions made by smaller banks that do the actual lending.

“There’s more risk in being that far away from the customer,” said D. Steve Boland, the Bank of America executive in charge of mortgage and auto lending. For example, a smaller lender could fail to verify a borrower’s income properly, and just sell the loan on to a bigger bank.

High degree of confidence

To minimize that risk, JPMorgan, like other banks, specifies exactly what correspondent lenders have to do to vet loans, and forces the smaller lenders to buy back loans that turn out to have fallen short of those requirements.

Greg Beliles, correspondent lending head at JPMorgan, wrote through a spokeswoman that the bank works with “experienced, well managed and high quality” lenders. Bank of America’s concerns may stem from its experience with Countrywide Financial, which Bank of America bought in 2008, the largest correspondent lender in the U.S. at the time.

Countrywide failed at least in part due to bad loans that it bought from correspondent banks and could not sell back to them. The Countrywide deal has been a huge millstone for Bank of America—the bank has paid some $70 billion in settlements and legal penalties linked to the financial crisis, much of which came from its acquisition of the lender.

Other lenders had trouble with correspondent loans during the crisis. Residential Capital, once the mortgage arm of Ally Financial, filed for bankruptcy in 2012, in part because of its exposure to correspondent lenders that were not able to make good on claims. Ally is the successor firm to GMAC, the car financing arm of General Motors.

No bundling

JPMorgan said it reviews every loan it buys in detail. That attention gives it a “very high degree of confidence in the loan quality we are purchasing,” JPMorgan’s Beliles wrote in his email.

He said JPMorgan keeps the bulk of mortgages it buys from other lenders on its balance sheet, rather than bundling them into bonds and selling them to investors. Banks like JPMorgan may be dialing up their risk taking a bit, but there is little evidence of a new bubble forming.

While a few small lenders are creeping back into products like subprime mortgages, bigger banks are by and large avoiding them. Delinquency rates on single family mortgages, which peaked at 11.26 percent in the first quarter of 2010, have declined fairly steadily ever since and stood at 5.77 percent at the end of the second quarter, according to data from the Federal Reserve Bank of St. Louis. In the last crisis, delinquency rates started rising in 2004, and by the third quarter of 2007, a year before Lehman Brothers failed, reached 2.76 percent, their highest level in 14 years. Correspondent loans can bolster a bank’s bottom line.

Eric Stoddard, the Wells Fargo executive who has overseen the bank’s business of buying mortgages from other lenders for almost 15 years, said it is cheaper to buy these loans than to make home loans in its branches.

The loans carry another advantage: the buying bank gains the right to collect monthly mortgage payments from the borrower, and receives a small monthly payment for its efforts. That right, known as a “mortgage servicing right,” can be a valuable asset, especially when rates are rising. One lender said banks who buy loans from him are taking less risk than they would be making their own loans because of their ability to force him to buy the loans back.

PERL, which has 200 employees and expects to make about $1.6 billion in home loans this year, sells about 60 percent of its loans to JPMorgan, according to founder and president Ken Perlmutter. “I think BofA’s a little foolish” not to buy loans, Perlmutter said. Bank of America, however, believes the risk isn’t worth taking. The bank, which serves one out of two U.S. households, doesn’t need to buy loans from other lenders if it has so many customers of its own.

“I’ve already got a relationship with the customer,” said Boland. “Our strategy is about capturing more of that relationship.”

Mortgage applications surge 25% on regulation worry

Another roller-coaster interest rate ride, combined with anxiety over new mortgage regulations, caused borrowers to rush to their lenders last week.

Total mortgage application volume surged 25.5 percent on a seasonally adjusted basis for the week ending October 2nd compared to the previous week, according to the Mortgage Bankers Association (MBA).

An ad for mortgages at a Citibank branch in New York.

An ad for mortgages at a Citibank branch in New York.

Both applications to refinance and to purchase a home were almost equally juiced. Refinance applications rose 24 percent, seasonally adjusted, and purchase applications were up by 27 percent. Purchase applications, which are usually less rate-sensitive week-to-week, are now 49 percent higher than one year ago, an astonishing jump given that the latest reads on home sales show the market appears to be weakening. They are now at the highest level in five years.

“The number of applications for purchase and refinance mortgages soared last week due both to renewed rate volatility and as many applications were filed prior to the TILA-RESPA regulatory change,” said Lynn Fisher, the MBA’s vice president of research and economics.

The change is part of a move by federal regulators to further protect borrowers by forcing lenders to disclose all details of a loan at least three days prior to closing; it went into effect October 3rd.

The average loan size of applications in the weekly survey increased by 6.9 percent, driven by a 12.1 percent increase in the average size of refinances.

Getting a mortgage may take longer under new rules

The goal is to make the mind-numbing mortgage process much easier for consumers to understand. It’s called Know Before You Owe, which sounds simple enough.

The means to that goal, however, is all-new paperwork and disclosure rules for lenders that went into effect this past Saturday and which some say could delay the mortgage process and cost consumers cash.

The standardized forms spell out exactly how much a borrower must pay for closing costs and how much each monthly payment will be as the loan ages and potentially adjusts, right up until its term ends.

Borrowers must get these new, standardized forms at least three days before closing on the loan, which is a shift from previous standards, which allowed changes to be made on a loan right up to and even during the closing.

Mortgage application process

“I think that’s a big one because consumers have been complaining about this left and right because they would get to the signing table and suddenly everything would change,” said Jason van den Brand, CEO of Lenda, an online mortgage refinance company operating in Washington, Oregon and California. “So you get quoted something and the loan gets locked, and you get to the closing table and suddenly the rate has gone up by a quarter percent, your fees have gone up $10,000 and you’re sitting there scratching your head going, what just happened?”

This is another outgrowth of the Dodd-Frank law, passed in 2010, designed to hold lenders accountable and protect consumers against what happened during the last housing boom. Back then, lenders offered borrowers loans with complicated terms, adjustments and penalties, without having to fully explain them.

Some borrowers didn’t even know their loans could adjust to higher payments or that the loans themselves were actually growing in size. Many of those risky loan products have been banned, but adjustable-rate loans are still perfectly legal and considered beneficial for many borrowers, as long as the borrowers know what they’re getting into.

The new rules (TILA RESPA Integrated Disclosure or TRID, if you really want to know) were completed two years ago, and the final date for implementation was even delayed three more months to make sure lenders could comply. At the heart of it are two forms, one providing the loan estimate and one the closing disclosure.

Those forms are designed to simplify the process for borrowers, but lenders have spent billions of dollars updating their systems to make sure they are complying, according to the Mortgage Bankers Association, which has a TRID Resource tab on its website. Some worry that even now lenders and real estate agents are just not ready.

“I think if we see a significant slowdown, and it doesn’t have to be that significant 30 to 60 [days] is pretty significant, if we see that slowdown start to happen, we’re going to see deals fall through and lenders change in the middle, and that’s the cascading effect that we are most concerned about,” said Mark McElroy, CEO of Pavaso, a digital closing platform.

Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), which is behind the new rules, reiterated in testimony to Congress last week that there will be something of a grace period for lenders to comply.

“Nobody believes that market participants are going to be trying to abuse consumers here; they’re trying to change their systems. So we’ll be diagnostic and corrective, not punitive, and there will be time for them to work to get it right and not be perfect on the first day,” said Cordray.

With the rules just 2 days old, Matt Weaver, vice president of mortgage sales at Finance of America Mortgage, a Blackstone Company, says it appears the sky has not in fact fallen, but he does expect to see delays, especially at the big banks, where closing time could stretch out to 60 or 75 days.

“There is a fee to extend rate locks. The question is, is that cost going to be passed on to the client. From an overall perspective, the market is saying slow down. It will all work itself out, but out of the gate we certainly are going to see some turbulence with the larger banks simply because of their volume,” said Weaver.

Independent lenders, like Finance of America, may have an easier time, as they control every aspect of the process. Weaver said his company hired additional staff and underwriters to be able to facilitate and narrow the time gap.

Realtors are most concerned, however, because the majority of those buying a home today are also selling a home, and time is always of the essence. Mortgage delays caused by the new rules could throw a wrench into some sales.

“When you are trying to brace them for a longer, drawn-out closing, that causes a panic,” added Weaver.

The best advice for borrowers is to prepare for delays, have all paperwork ready before even starting the process and possibly even spend the extra money upfront for a longer lock term.

Mortgage applications surge 25% on regulation worry

Another roller-coaster interest rate ride, combined with anxiety over new mortgage regulations, caused borrowers to rush to their lenders last week.

Total mortgage application volume surged 25.5 percent on a seasonally adjusted basis for the week ending October 2nd compared to the previous week, according to the Mortgage Bankers Association (MBA).

An ad for mortgages at a Citibank branch in New York.

Both applications to refinance and to purchase a home were almost equally juiced. Refinance applications rose 24 percent, seasonally adjusted, and purchase applications were up by 27 percent. Purchase applications, which are usually less rate-sensitive week-to-week, are now 49 percent higher than one year ago, an astonishing jump given that the latest reads on home sales show the market appears to be weakening. They are now at the highest level in five years.

“The number of applications for purchase and refinance mortgages soared last week due both to renewed rate volatility and as many applications were filed prior to the TILA-RESPA regulatory change,” said Lynn Fisher, the MBA’s vice president of research and economics.

The change is part of a move by federal regulators to further protect borrowers by forcing lenders to disclose all details of a loan at least three days prior to closing; it went into effect October 3rd.

The average loan size of applications in the weekly survey increased by 6.9 percent, driven by a 12.1 percent increase in the average size of refinances.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.99 percent, the lowest level since May 2015, from 4.08 percent, with points increasing to 0.46 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. This average reading, however, does not show how low rates got on certain days last week, with some lenders quoting as low as 3.625 percent.

While the weekly jump is significant, mortgage application volume is still running historically low, especially on the purchase side, given population growth and pent-up demand from the recession. Purchase application volume is less than half of what it was during the housing boom from 2005-2007, and is now back to levels comparable to the late 1990s.

Choosing to crowdfund the real estate market

While high-technology and community ventures have dominated the headlines when it comes to crowdfunding, more challenging areas of investment, such as real estate, are also finding success, according to one industry executive.

More people are being drawn into this increasingly crowded space, with platforms like Realty Mogul, Property Moose and Fundrise leading a sector which globally raised over $1 billion in real estate during 2014. By the end of this year, that figure is expected to almost triple, up $2.57 billion worldwide, according to a Massolution report released this year.

“I always wanted to provide access to more investors and crowdfunding is a perfect way to do that. You can give access to tens of thousands of investors online, and make it as easy to buy stocks or bonds online.”

In the aftermath of 2007/2008’s global financial meltdown, people’s faith in traditional institutions became unsteady, so the rise of crowdfunding, pop-ups and unique ideas became increasingly attractive.

Consequently, investors have become more conscious with how they spend their money, and crowdfunding should provides opportunities suitable even during recession periods, which is a key focus of Helman’s company.

“Investors need a place to live in both good times and bad times.”

On Realty Mogul, investors are invited to pool together their money with other users to invest in a real-estate project, putting in as little a $5,000. The average return for the investments put out on Realty Mogul varies on risk level, however, Helman estimated it can range from 7 percent to as high as 20 percent.

As the latest S&P/Case-Shiller index showed U.S. house prices continued to rise this July, up 5 percent more affordable places to live are becoming more attractive, so Realty Mogul has got investors interested in the mobile home park space, where more than 20 million U.S. citizens currently reside.

Already over 17,000 active institutional investors have joined Realty Mogul’s community, having invested more than $80 million in over 250 estates, since the platform went live in 2013.

Defining itself as the “e-trade of real estate investing,” iFunding, a New York based investment platform, has fully funded multiple property developments worth over $1 million.

Across the Atlantic on Wednesday, residential property platform, Property Partner, listed a mortgaged investment for sale on its site – a European first– made up of three individual flats in Greater London, all of which were fully crowdfunded within 62 minutes of its launch.

Homes as ATMs It’s starting again

As home values rise, homeowners are gaining more equity on paper — and they’re taking it out in paper. Cash-out refinances jumped 68 percent in the second quarter from a year ago, according to Black Knight Financial Services. This is the highest volume of this type of refinance in five years.

“People realize that refinancing these funds is extremely inexpensive and that rates will eventually rise, so they’re capitalizing on the strength of home price appreciation,” said Ben Graboske, senior vice president at Black Knight Data & Analytics.

House and money

Mortgage holders have gained about $1 trillion in home equity collectively over the past year. On an individual basis, borrowers doing cash-out refinances are taking an average $65,000, which is comparable to what borrowers did in 2006, the height of the last housing boom. While the jump is significant, the volume is still nowhere near where it was back then. In fact, volume is still 80 percent below where it was at the peak in 2005.

That is not the only difference. Today’s refinancer is in a far more solid equity position in his or her home, compared with borrowers then, who used their homes like ATMs, pulling out every available dollar. Even after tapping equity, the average resulting loan-to-value ratio for today’s borrowers is 68 percent, meaning the borrower has only leveraged 68 percent of the home’s current value. That is the lowest level in a decade.

“That reflects real strength of price appreciation and consumer sentiment,” said Graboske.

The jump in cash-out refinances could be behind the strength in auto sales and home remodeling. The lack of homes for sale has caused many potential buyers to stay where they are, even though they have the equity to move up. In turn, they are using that equity to not only enhance their home but to add to its value.

“This is because more homeowners will choose to stay in place and remodel rather than abandon their current low rate mortgage by moving,” according to researchers in the study.

Cash-out refinances were most popular in California, accounting for 30 percent of all volume, according to Black Knight. The next closest was Texas, accounting for 7 percent. These states have seen the most home value appreciation. Should home value appreciation slow or even flatten, those hearty loan-to-value ratios will shrink, but it is unlikely today’s highly cautious, litigation-leery lenders will allow borrowers to take out more cash than is prudent.