Bulls & Blogs

Rate update: Is it really all about Greece?

Interest Rates, Residential Mortgage Comments Off

Jun 302015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Well, Greece went and did it. They defaulted on their IMF debt. Markets reacted rather hysterically yesterday driving interest rates down. Now what?

It’s still possible Greece and its creditors will find a last-minute, face-saving solution that will float Greece a little longer. However, the Germans seem tired and scared of the grandstanding Greek politicians. If the Germans cave, they might invite other struggling nations to toss their austerity plans. In any event, the Greek president has called a referendum this Sun to let his people decide whether to accept its creditors’ latest offer. A no-vote could roil markets again next Mon.

But the real question is whether the resulting uncertainty can reverse the current market sentiment towards higher rates. I said last week that any rate rally would be temporary, and I’m still leaning that way. US economic data has been stronger of late, with both retail sales and wages growth showing a pulse. Most of the Federal Reserve governors seem intent on raising short term interest rates before the end of the year. I think it will take more than Greek drama to turn the tide.

Interest-only mortgages make a comeback

Loan Programs, Residential Mortgage Comments Off

Jun 262015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

One of the more notorious loan products back before the housing crisis was the interest-only loan. Homebuyers who wanted a larger home, but couldn’t qualify for a traditional mortgage, would use an interest-only program because of the lower initial payment, and some lenders were approving the loans based on that lower payment. When the interest-only period ended, borrowers would face a sharp payment increase when their payment started to include principal reduction.

But interest-only loans are not inherently dangerous. In fact, they can make sense in some cases. For example, the product could make sense to a starting doctor who is confident his income will rise in the future. At the end of the interest-only period, the payment shock wouldn’t be difficult for him to handle. Or consider the case of an investor who wants to allocate her money to higher earning assets. If her investment horizon is shorter than the interest-only period, she’ll never see the payment shock.

Today, the program is making a comeback, but unlike pre-crisis, today’s lenders require that the borrower qualify at the payment that would apply after the interest-only period ends. It’s a very conservative approach that will prevent many from using the product, but in today’s market, safety trumps utility.

Are we heading for another housing crash?

Real Estate Market Comments Off

Jun 252015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The recent run-up in home prices has led some to speculate that another bubble is forming. And bubbles tend to end spectacularly, like the 2008 housing crash. What are the chances of another crash?

The biggest difference between today’s housing market and the pre-crisis market is the level of leverage. Before the crash, mortgage debt amounted to 63% of real estate value. Today, that leverage rate is down to 44%. Thus, the market today should be more insulated from a rapid decline in prices.

Much of the decline in mortgage debt is the result of the elimination of delinquent debt through foreclosures, short sales, and other mechanisms. It also appears to be the result of the elimination of most of the no-money down payment loan programs that ruled in the pre-crisis era.

Rate update: Will Greece give mortgage seekers a gift?

Interest Rates, Residential Mortgage Comments Off

Jun 242015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Last week gave us a nice pause in what had been a steady rise in mortgage rates, but it apparently had more to do with market mechanics than a fundamental change of sentiment.

This week is a fairly busy one for US economic data. The most interesting may be housing data, which finally has been showing strength. The housing market has been a big missing in the anemic recovery from the financial crisis. While other economic data remains lackluster, the thinking is that housing may drag the economy into a more robust recovery. In anticipation of more robust growth, markets are pushing interest rates higher.

Pushing the other way are Greece and weakness in China, but Greece may be the key this week. Greece has a huge debt payment due, and they have no way to pay it without an extension of its bailout. Based on recent headlines, it sounds like Europe fears the uncertainty of a Greek default more than it fears that fiscal mismanagement will drain the EU of economic growth. But, if Greece defaults, I bet we see a nice, albeit temporary, rally in mortgage rates.

Flood insurance rate spike

Residential Mortgage Comments Off

Jun 102015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The recent flooding in our state may have some folks thinking about flood insurance. The National Flood Insurance Program, backed by the federal government, provides the only reasonable insurance for those in flood-prone areas against catastrophic loss.

Unfortunately for those who need the insurance, the government announced an annual surcharge starting this year of $25 for owner-occupied homes in flood zones and a surcharge of $250 for vacation homes. Insurance premiums are heavily subsidized by taxpayers, so the much higher surcharge for vacation homes is intended to reduce that subsidy somewhat on properties that are considered more of a luxury. If you own your vacation home free and clear, you could consider dropping coverage, but unfortunately, if you own a home in a flood zone that has a mortgage, you have no choice but to pony up the extra $250.

FEMA reports that the average premium for homes in flood zones is $638, so the increase for owner-occupied homes is rather mild, especially given reports last year that the fund was in danger of running dry.

Rate update: What could stop the move towards higher rates?

Interest Rates, Residential Mortgage Comments Off

Jun 092015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates shot up last week to their highest levels of the year. While Fri’s jobs report showed healthy job creation in May, I think it’s the undercurrent from the European bond market that’s driving rates higher. German 10y bond rates have increased from near-zero to almost 1% in a couple short months, and they’re dragging US rates along for the ride. Unless and until investors stop the bond selling stampede, the market is going to be biased towards higher rates.

There are 2 other things to keep in mind:

– Recent US economic data has been fairly positive, especially wage growth, which finally has a pulse. It is increasingly likely the Federal Reserve will raise short-term interest rates at its Sep meeting, and that will inject more volatility into markets.

– In Europe, the chances of a Greek default are increasing. Greece needs an extension of its bailout, but the European Union wants it to reform its economy. Reports are that recent Greek reform proposals are rehashed junk the EU already has rejected. That said, I’m still betting the EU finds a way for Greece to save face. But if Greece defaults, that could be the ripple to pause this move towards higher rates.

Bill to remove medical collections will help homebuyers

Credit Scoring Comments Off

Jun 032015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Congress is considering a bill, the Medical Debt Relief Act, that could be a boon to thousands of homebuyers. The bill would require credit bureaus to remove medical debt from a person’s credit report within 45 days of the debt being settled or paid.

The legislation addresses a breakdown in our health insurance system that allows creditors to ding patient’s credit reports when a medical claim isn’t handled correctly or in a timely manner. Patients are responsible for what insurance doesn’t pay, and I’ve seen many cases where patients didn’t realize there was a residual balance on a bill. Medical providers understandably want to get paid, and their recourse is to file a collection action. Unfortunately for the patient, this action could ruin an otherwise pristine credit score and result in thousands of dollars of extra interest when they apply for a loan.

Congress has tried to pass similar legislation a number of times in the past, so passage isn’t guaranteed. However, numerous consumer and industry groups have endorsed this bipartisan bill, which may give it a chance this time.