Mortgage rates

Discussion in 'Business, Investing & Finance' started by Zambo, Jul 3, 2019.

  1. GatorInGeorgia

    GatorInGeorgia Senior Member
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    Just don’t pay attention to the 80% income tax rate and the 17.5% VAT (value added tax) you pay on everything you purchase. :lol:
     
  2. Concrete Helmet

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    Exactly....he is technically right about "lowering the rate"...you can't change that part of the equation. What I meant is that if you have a 15 year fixed and through principal reduction payments plus your regular scheduled payments you pay it off in say 8 years. Go back and run the total amount you actually paid in interest vs what the original 15 year amortization was and recalculate it to get to the lower "rate".....
    I know that in reality you are just shortening the terms and the rate would come out the same if the original mortgage were set up that way, but it makes me feel better like I took advantage of the Bank when I control the terms and save a ton of money.
     
  3. Politigator

    Politigator L-boy's Cousin
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    Yes you are lowering interest paid. You are also lowering your principal at the same time. Your rate does not change, period. This is not a debatable political view. This is fairly basic math.
     
    • Politigator

      Politigator L-boy's Cousin
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      Also, while in many cases paying off a mortgage may make sense, if it is a very low rate it often doesnt. It always makes sense to refi, if the numbers work, but I'd only pay off a low rate mortgage if I were approaching retirement and I were very liquid, sitting on a bunch of cash or short term equivalents.

      I would almost always do these before paying off a low rate mortgage:

      - see if refi makes sense
      - max out all 401k, individual IRAS (Roth or traditional)
      - max any HSA opportunity
      - if less than 40, maybe even 50, open a taxable investment account.
      - make sure I have a large cash reserve, at least 6 months of income.

      I understand paying off mortgages makes people "feel good". But I'd prefer to have the liquidity a govt subsidized FIXED low interest loan provides.
       
      • GatorInGeorgia

        GatorInGeorgia Senior Member
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        I never said it did.
         
        • bradgator2

          bradgator2 Internet Bully
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          Rolling along.

          Appraisal came back WAY higher than even my estimate on the application. Lack of mid-to-higher end inventory in this area has really driven up prices. So recent comps are shockingly ridiculous. For a few seconds, it almost tempted me to take some money out.

          Additionally, the institution I am dealing with does not require escrow. Which I love and have had that on a previous mortgage in my life. I'll be able to escrow myself and invest that money as I see fit over the year.

          At this point, should close within 10 days. :yes:
           
          • Concrete Helmet

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            I think I brought this up because Brad mentioned how much he would save over the life of the loan if he had gone with a 2.80% versus a 3.0% I was simply stating that he could still save that much with his current 3.0% rate by tossing in an extra $25-50 a month and not paying extra points(upfront) on the loan....
             
          • Concrete Helmet

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            Not to get Polly's panties in a wad but if you factored in the interest you'll be making on the escrow account funds and deducting that amount from a similar amount of your mortgage balance you would be "beating down" the interest on the mortgage :lol:.
             
          • bradgator2

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            :lol: I understood your original point clearly.
             
            • bradgator2

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              I'll take a stab at the comparison.

              $200,000 mortgage, 4% interest, 30 years.
              That is $954 per month payment. $143,739 in total interest paid over the life of the loan.

              If you paid $100 extra each month, the payment would be $1054. The loan would be paid off in 25 years and with $116,702 in total interest paid.

              So, is it fair to say that you equivocally (or effectively, of kinda-like, or more or less) just paid a 30 year mortgage at a rate of 3.35%? (A 30yr on $200,0000 that has $116,702 in interest paid has a rate of 3.35%.)

              Really who gives a shiit how it makes sense in your head. Bottom line is you saved $27,037 in interest over the life of the loan.
               
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              • Bushmaster

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                30 Year mortgage rates anyone?

                Bueller??
                 
              • NVGator

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                9th month in a row of a decline. August finished at 3.62%


                Screen Shot 2019-09-10 at 9.36.42 PM.png
                 
                • bradgator2

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                  We indeed closed the Friday before labor day. Holiday weekend plus Dorian made it interesting, but we got it done. 3.0% 15 yr. Could have taken 2.8%. But the 3.0% option covered a huge chunk of closing costs. Pretty stoked.
                   
                  • NVGator

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                    The federal government has dramatically expanded its exposure to risky mortgages, as federal officials over the past four years took steps that cleared the way for companies to issue loans that many borrowers might not be able to repay.

                    Now, Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee almost $7 trillion in mortgage-related debt, 33 percent more than before the housing crisis, according to company and government data. Because these entities are run or backstopped by the U.S. government, a large increase in loan defaults could cost taxpayers hundreds of billions of dollars.

                    This risk is the direct result of pressure from the lending industry, consumer groups and political appointees, who clamored for the government to intervene when homeownership rates fell several years ago. Starting in the Obama administration, numerous government officials obliged, mistakenly expecting that the private market ultimately would take over.

                    In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to data from the Urban Institute. Taxpayers are shouldering much of the risk, while a growing number of homeowners face debt payments that amount to nearly half of their monthly income, a threshold many experts consider too steep.

                    Roughly 30 percent of the loans Fannie Mae guaranteed last year exceeded this level, up from 14 percent in 2016, according to Urban Institute data. At the FHA, 57 percent of the loans it insured breached the high-risk echelon, jumping from 38 percent two years earlier.

                    This article is based on interviews with 24 senior administration officials, regulators, former regulators, bankers and analysts, many of whom warned that risks to taxpayers have built up in the mortgage sector with very little scrutiny.

                    [​IMG]
                    A single-family home under construction in McHenry, Ill. In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to data from the Urban Institute. (Tannen Maury/EPA-EFE/REX/Shutterstock)
                    The binge in high-risk lending has some executives and regulators on edge and could grow problematic if the economy continues to weaken or enters a recession, as more economists are predicting could happen within a year. Two Freddie Mac officials told a government inspector general earlier this year that certain loans they had been pushed to buy carried a higher risk of default, and problems could multiply when the economy slows.

                    “There is a point here where, in an effort to create access to homeownership, you may actually be doing it in a manner that isn’t sustainable and it’s putting more people at risk,” said David Stevens, a former commissioner of the Federal Housing Administration who led the Mortgage Bankers Association until last year. “Competition, particularly in certain market conditions, can lead to a false narrative, like ‘housing will never go down’ or ‘you will never lose on mortgages.’ ”

                    The risky situation is a direct outgrowth of the extraordinary steps taken more than a decade ago in response to the 2008 financial crisis, which itself had roots in excessive mortgage lending and a broad national focus on boosting homeownership.

                    Democrats pushed for curbs on risky lending, but Obama administration regulators later nudged Fannie Mae and Freddie Mac toward riskier mortgages. The Federal Housing Finance Agency and the Department of Housing and Urban Development continued to allow Fannie and Freddie to expand their exposure to risky loans during the Trump administration. White House officials did not directly push the change, but they did little to stop it. The Treasury Department has recently called for cutting back on mortgage-related risks, but it is not a top priority at the White House while Trump battles Democrats on impeachment.

                    Now the government’s response to the last crisis threatens to cause a new one. The White House and congressional leaders are searching for answers, and Trump administration officials are looking for a way to release Fannie Mae and Freddie Mac from government control. The Trump administration took a critical step, allowing the firms to hold on to more capital to cushion against future losses. The process is expected to take more than a year.

                    Sudden alterations to the current system could disrupt the housing market and make it more expensive for people to buy homes, a treacherous political dynamic heading into an election.

                    Fannie Mae and Freddie Mac purchase home loans from lenders. They retain a small portion of these loans on their books, but they package most of the loans into securities and sell them to investors. Separately, FHA insures home loans against default as an incentive for lenders to offer mortgages to higher-risk borrowers. These entities were created by Congress to try to encourage homeownership.

                    Company and government officials have acknowledged that the recent push to expand access to mortgages has increased risks of mortgage defaults, but they have said they have properly assessed the risks so they don’t suffer big losses in a downturn.

                    “Certainly, I think we do need to be concerned overall about some of the risk that’s in the mortgage market,” said Mark Calabria, director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac. “There are some patches in the housing market that are going to hit some turbulence if there’s a downturn.”

                    'Is there a right answer?'
                    In 2013, still scarred by the financial crisis, federal regulators faced a conundrum.

                    The 2010 Dodd-Frank law that overhauled banking rules required the new Consumer Financial Protection Bureau (CFPB) to crack down on mortgage practices that didn’t take into account a borrower’s “ability to repay” the loan. The provision was meant to prevent the types of abusive mortgages that proliferated during the housing bubble, ones with low, short-term teaser rates or huge monthly payments.

                    Lenders wanted their mortgage to receive CFPB’s blessing so they couldn’t be penalized for making predatory loans. But banks wanted to shape what CFPB’s standards looked like before it was too late, and a lobbying frenzy ensued.

                    More here...
                    https://www.washingtonpost.com/busi...62ab40-ce79-11e9-87fa-8501a456c003_story.html
                     
                  • Concrete Helmet

                    Concrete Helmet Hook, Line, and Sinker
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                    Couple this with an increasing amount of consumer debt(non mortgage related) that is being repaid with equity from market increases and well......
                    Were doing over 200 O&E reports for HELOC's and still closing over 150 full title refi's monthly. Sadly many of these 2nd's and some of the 1st are going to people who have refied in the last 24 month's......the credit card payoffs are HUGE....30K-90K in many instances. Good for us now......BUT.....
                     
                  • FireFoley

                    FireFoley Senior Member
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                    Good reads and info @NVGator and @Concrete Helmet as I was just reading an article about re-default rates on mortgages that had previously defaulted and had been reworked, etc. Trying to post it. But as we all know if people have any room on their credit card they will use it.

                    Wall Street and the news media have paid considerable attention to U.S. home mortgage modifications, but not much notice has been given to the growing problem of re-defaults on these modifications. Re-defaults are a massive problem — and endanger the U.S. mortgage and housing markets.

                    What is a mortgage modification? In the midst of the housing collapse more than a decade ago, mortgage modifications were rolled out to enable millions of delinquent homeowners to avoid having their home foreclosed. In its latest report, the non-profit Hope Now consortium — the major source for modification data — estimated that 8.7 million permanent mortgage modifications have been implemented in the U.S. since the end of 2007.

                    A modification created permanent changes to the original mortgage by one or more of the following: (a) stretching out the amortization period; (b) reducing the interest rate; (c) adding the delinquent interest arrears to the outstanding principal (known as capitalization), or (d) reducing the amount of the principal owed.

                    The 8.7 million permanent modifications do not include the temporary fixes that lenders have provided. According to Hope Now, roughly 17 million temporary solutions have been rolled out under what’s called “Other Workout Plans.” The two most important ones are called forbearances and repayment plans. Under these plans, millions of delinquent borrowers were provided a temporary deferment or reduction of the payments due until their financial condition improved. These temporary solutions are not reported under permanent modifications. Nevertheless, owners given temporary workout solutions are considered current on the mortgage.


                    Re-default mess
                    The U.S. Office of the Comptroller of the Currency (OCC) regulates national banks and publishes a quarterly Mortgage Metrics Report. The OCC data comes from banks, which are the largest servicers of residential mortgages. In its report for the first quarter of 2013, the OCC stated that these servicers had modified slightly more than 3 million loans between the beginning of 2008 and the end of 2012. Of these modified mortgages, 47.3% of them were still current at the end of the first quarter of 2013. The rest were either seriously delinquent, in the beginning of foreclosure proceedings, had already been foreclosed, or were no longer in the portfolio of the servicer.

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                    In its most recent report for the first quarter of 2019, the OCC noted that 21% of the most recently modified loans had re-defaulted within six months.


                    More than 3 million loans guaranteed by the Federal Housing Administration (FHA) that were in Ginnie Mae pools had been modified between 2008 and 2013. A 2014 report found that they had performed badly. Roughly 57% of these modified loans had re-defaulted by 2013.

                    In July 2016, Fannie Mae released a dataset of close to 700,000 loans modified between the beginning of 2010 and the end of 2015 to provide greater transparency of modification performance. In February 2017, Fitch Ratings published a report based on Fannie Mae's dataset entitled “Risk Growing in Mortgage Loan Modifications.” The authors asserted that it was reasonable to assume the trends they found for Fannie Mae modified loans would also apply to loans modified by others.

                    The Fitch report emphasized that the most recent Fannie Mae modifications in 2015 showed the fastest re-default rates since 2010. The analysis showed this was due to the steadily rising percentage of modifications between 2010 and 2015, which were second- or third modifications. In 2011, 95% of all the modifications originated were first modifications. By comparison, more than one-third of the modifications in 2015 were second- or third modifications.

                    This graph in the Fitch report shows clearly that re-default rates climb as delinquent borrowers enter second- or third modifications:

                    [​IMG]
                    This deteriorating situation with Fannie Mae re-defaults has been confirmed in the Federal Housing Finance Administration's (FHFA) latest Foreclosure Prevention Report. It revealed that in the fourth quarter of 2017, 54% of the loans modified 12 months earlier were current and performing.

                    Until 2018, Fannie Mae published re-default rates for its modified loans in its quarterly Credit Supplement report. The table below shows the consistent rise in these rates:

                    [​IMG]
                    In early 2018, these re-default statistics disappeared from Fannie Mae's Credit Supplement, which was renamed Financial Supplement. Fannie Mae did report in its annual 10-K Report for 2018 that the 12 month re-default rate had climbed to 39%. Based on Fitch Ratings data, the re-default rate for Fannie Mae loans modified three or more years ago could be approaching 50%.

                    What about the too-big-to-fail banks? JPMorgan Chase JPM, -2.23% holds the second-largest residential mortgage portfolio in the nation. In its earnings report for the second quarter of 2019, the banking giant showed nearly $10 billion of modified loans (known as troubled debt restructurings). Of these, 43% were listed as having re-defaulted. Bank of America BAC, -2.40% has stated that 41% of its modified loans had re-defaulted.

                    Re-default rates for the worst of the non-agency bubble era loans
                    As I explained in a recent column, the worst of the bubble-era loans are found in non-agency securitized tranches. According to the Securities Industry and Financial Markets Association (SIFMA), roughly $819 billion of these bubble-era loans are still outstanding. A BlackBox Logic study published in June 2016 analyzed nearly 200,000 subprime loans which had been modified as late as 2013. It reported that 44% of these loans had defaulted within a year and 60% within two years.

                    For many years, TCW has been publishing a monthly Mortgage Market Monitor using data from CoreLogic's Loan Performance database. The September 2018 report reveals that prime, ALT-A and subprime securitized mortgages were delinquent for more than two years before the major servicers modified the loan. The majority of these modifications tacked delinquent interest onto the loan's outstanding principal.

                    Forbearances and repayment plans
                    The 17 million “Other Workout Plans” from Hope Now’s latest report included 10.4 million “Repayment Plans” offered to borrowers who claimed unforeseen but temporary financial distress. They were nearly always coupled with a temporary forbearance by which the lender agreed to a three- to 12-month reduction or even suspension of the regular mortgage payment. At the end of the forbearance period, the borrower was then obligated to resume paying the regular mortgage amount plus the missed payments including principal, interest, taxes, and insurance. These additional arrears were apportioned over an agreed upon schedule until fully repaid.

                    It should be evident that the mortgage modification re-default problem is enormous. Mortgage servicers have been able to avoid foreclosing on many of these long-term repeat defaulters for years. New defaults are occurring regularly. Whether or not this disaster-in-the-making can be resolved will affect millions of U.S. homeowners and the value of their property.

                    It is important to understand what the OCC's Mortgage Metrics Report reveals — that for the past five years (or longer), roughly 75%-95% of all mortgage modifications have included capitalization of interest arrears, meaning all delinquent interest payments have been added to the outstanding principal.

                    Here’s a real example of a 2008 California mortgage that was modified in 2015. The original loan was $400,000. The borrower had been delinquent for several years. The interest arrears combined with the other expenses incurred by the lender to protect its interest in the note amounted to $127,766. This was tacked on to the outstanding principal and the new amount owed on the modified loan came to $515,000. Because the term of the new loan was stretched out to 40 years, the new monthly payment of $2,879 was slightly less than the original payment.

                    Since the original loan was taken out in 2008, the borrower would have been paying his mortgage for a total of 47 years when it finally matured in 2055. Do you really expect this loan will ever be paid off? The original 2008 mortgage was taken out shortly after the peak in California home prices. The value of the house dropped substantially from then until prices bottomed in 2012. In 2015, the property was almost certainly still underwater, yet this borrower owed $115,000 more than he did seven years earlier. What incentive does a homeowner have to continue paying the mortgage?

                    Re-default rates could tell us where housing and mortgage markets are headed
                    Mortgage servicers have instituted close to 9 million permanent modifications to help delinquent homeowners avoid foreclosure and remain in their homes. Critics of these modification programs have argued that they merely kick the can down the road without solving the delinquency problem.

                    Millions of U.S. homeowners have re-defaulted on their mortgage modification. Even worse, a steadily growing percentage of them have re-defaulted more than once. As home prices continue to weaken, many of these re-defaulters will see that continuing to pay their modified mortgage does not make much sense. I strongly suspect that within a year, both lenders and servicers will face hard choices about these re-defaulters.

                    Keith Jurow is a real estate analyst who covers the U.S. bubble-era lending debacle and its aftermath. Contact him at www.keithjurow.com.

                    Read: Here’s the real reason why U.S. home prices haven’t been demolished

                    More: These are the least tax-friendly states in America

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                    • Concrete Helmet

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                      Understand that modifications are a tool used by both lender and borrower, a lot of times on the advice of Lawyers , to buy time hoping un an upswing in market values....In other words most lenders don't want to own overly indebted properties because of the expense and losses that occur.

                      Many Attorney's advise this because it is a stall tactic for their clients to save money to move to another property(starting the foreclosure process all over again) all the while hoping there is an increase in property value or completion of a successful short sale. Remember that foreclosure incurs cost beyond the loss of loan value to property including property preservation, paying off municipal liens, HOA liens, bringing property taxes current their legal cost plus real estate commissions, title examinations and closing fees....This can add up to tens of thousands and in some cases we've seen close to $100,000...that's besides the hit they take in a market turndown.

                      Even in the case of short sale(we negotiated 100's of them between 2008-2014) there is still a substantial loss plus associated cost....many lenders try and sell off the loan of assign it to another division or entity to balance out losses.

                      It's coming, just a matter of when.
                       
                    • ExecutiveGator

                      ExecutiveGator Paragraphs are great tools. Use them.
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                      Just refinanced home. Went from 4.75 to 3.5. Both 30-year fixed.

                      My plan is to essentially take the monthly savings of almost $400/month and put it into investments. Minimum payments for 30-years on home actually will cost me another $20K or so then having kept original loan going, but long term thinking is that the invested money of almost $5000 a year will net me over that interest loss when all said and done.

                      Am I crazy or on the right track, keeping in mind I’m in my mid-30s?
                       
                      • GatorInGeorgia

                        GatorInGeorgia Senior Member
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                        Congrats!
                         
                        • FireFoley

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                          Congrats. I love stories like this, but since you went back into a 30yr., you noted the increased cost. I like your idea of investing the approx. 5K a year, but have you also considered applying the extra 400/month or some amount toward the mortgage to pay it off early? Certainly not suggesting or telling you what to do, just making an observation.
                           

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