- Jul 24, 2020
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Get out the popcorn....
Get out the popcorn....
Get out the popcorn....
Well the graphic is (as is usual for the media) muddling terms because they don't know anything.It’s been a while since I was a master of a financial calculator, but I don’t think a 400,000 mortgage at 6% results in payments of $1,945.
I think it’s quite a bit higher than that, even without the escrow payments.
Those numbers make sense: I thought they meant 20% down to avoid PMI (an expense just like escrow costs the unsophisticated don’t understand and get burnt)Pretty sure they are meaning 400,000 purchase price, 20% down with a final loan amount of $320,000. That is the math for an eighth above six. That's actually closer to par for peeps with credit scores in the 740s the last couple days.
A year and a half from now expect DU/LP refi plus version 3.0 schemes to keep people paying for houses that are deep underwater.
I don't think the Fed can keep rates up(not buying MBS)for very long, 3-4 months....Remember it's ok to destroy the SM, and even chip away at the bond market but the housing market is twice as big as both combined and we saw what happened in 2008....they will stop short and reverse course somewhere this fall IMO...The missed opportunity among many over the last decades of historically low rates, is huge. Millions of prospective home buyers will be all but priced out of the market for a while, cooling or not. As I have said, the wealth gap that emerges from this will be massive.
I don't think the Fed can keep rates up(not buying MBS)for very long, 3-4 months....Remember it's ok to destroy the SM, and even chip away at the bond market but the housing market is twice as big as both combined and we saw what happened in 2008....they will stop short and reverse course somewhere this fall IMO...
I know enough lingo to be dangerous, could you clarify what DU/LP refi and version 3.0 schemes mean?
FWIW, I think there’s going to be a TON of foreclosures coming up. Wife and I bought our first home Feb 2020 (right before bubble, thank you lord). They qualified us for a loan with a 50% debt to income ratio.
We knew better than to push that ratio, but a lot of people don’t. Then, when the higher property taxes hit after 1st year and the recent spike in home owners insurance, some people are probably putting 55%+ of income into housing.
YIKES!
Yes and no.....If there are less qualified buyers in the market due to higher rates and still pretty low inventory that creates a larger pool of renters and will keep rent levels close to where they are at now. 85% of the investment purchases that we've closed over the last 2 years were cash deals....That's not to say they aren't leveraged somehow and in fact we are SLAMMED with cash out HELOC's on both primary and investment properties over the last 2-3 months.Yes, there are going to be a ton of foreclosures - starting when the panicked investors realize they can't sell the properties that are collapsing in value and simply stop paying the mortgage.
Uh yeah, and what happens when the equity that exists merely on paper disappears? Kinda my point here. I had qualified borrowers who couldn't get an offer accepted because you had loons (and not just cash buying ones) competing at amounts over the asking price. Many of those "cash buyers" were actually using HELOCS to purchase properties with the false equity cash and with no plans on actually being a landlord, merely hold and sell. At least they'll have one to live in.Yes and no.....If there are less qualified buyers in the market due to higher rates and still pretty low inventory that creates a larger pool of renters and will keep rent levels close to where they are at now. 85% of the investment purchases that we've closed over the last 2 years were cash deals....That's not to say they aren't leveraged somehow and in fact we are SLAMMED with cash out HELOC's on both primary and investment properties over the last 2-3 months.
Awesome write up. Thanks!Yeah so few things here.
First, as to your question:
DU - Automated Underwriting System, Desktop Underwriter - Fannie Mae
LP - AUS Loan Prospector - Freddie Mac
refi plus - a no documentation loan for those current on their mortgages that were automatic approvals provided the P&I payment was reduced. Essentially it helped keep the ship from capsizing by having rubes - I mean customers - refi their loan for a slightly lower payment and longer term thus adding stability to the MBS (mortgage backed securities) market by having Joe Average throw good money after bad while the property speculators dropped those underwater homes like they were radioactive.
3.0 - because this would be the third iteration of this silver bullet by the GSEs (government sponsored entities - aka Fannie Mae, Freddie Mac and Ginnie Mae - although the later had programs through FHA)
Your lender were offering those terms because that's what LP (and I'm going out on a limb that this was either a Freddie Loan or VA) gave an automated approval for. Mysteriously the non-VA people I had qualifying with 50% DTI and not at favorable LTVs either were mostly flagged for first time homebuyer programs. Meaning political direction had come down on the GSEs to get more first time homebuyers loans. This pattern with <insert demographic flagged by someone as underserved> has been repeating over and over in the industry. It started with the rewrite of the Community Reinvestment Act and the virtual take over of the GSEs of purchasing of loans to be packaged as MBS.
Don't worry - Dodd Frank fixed everything....also, I'd like to sell you the Buckman Bridge. Make the check for 10,000 out to cash. I'll tell you where you can leave it and pick up the deed. I literally chuckle (as I'm sure the people that passed it do) every time I hear the name; as there is perhaps no bigger middle fingers that could have been given to the American people than to name the bill designed to "correct the issues in the industry" after two of the biggest profiteers off of the previous methods of grift in industry. But I digress...
Yes, there are going to be a ton of foreclosures - starting when the panicked investors realize they can't sell the properties that are collapsing in value and simply stop paying the mortgage.
Not sure, maybe for a lot of shoestring investors but most of our clients have 10,15-20 and sometimes more rental units that they have decided to use as fixed income instruments to replace the bonds in their portfolio. If rental rates stay high on something you own outright you just collect the rent until the market comes back which it will at about another 20-25% increase...at that point you dump and go back to equities and bonds which will be toast for the next 3-5 years minimum save for bear market rallies.... Why do you think large hedge funds/Institutional funds started buying rental properties 1.5-2 years ago? To replace bonds.....Uh yeah, and what happens when the equity that exists merely on paper disappears? Kinda my point here. I had qualified borrowers who couldn't get an offer accepted because you had loons (and not just cash buying ones) competing at amounts over the asking price. Many of those "cash buyers" were actually using HELOCS to purchase properties with the false equity cash and with no plans on actually being a landlord, merely hold and sell. At least they'll have one to live in.
Not sure, maybe for a lot of shoestring investors but most of our clients have 10,15-20 and sometimes more rental units that they have decided to use as fixed income instruments to replace the bonds in their portfolio. If rental rates stay high on something you own outright you just collect the rent until the market comes back which it will at about another 20-25% increase...at that point you dump and go back to equities and bonds which will be toast for the next 3-5 years minimum save for bear market rallies.... Why do you think large hedge funds/Institutional funds started buying rental properties 1.5-2 years ago? To replace bonds.....