Boomer Wealth Dented by Mortgages Poses U.S. Risk – Bloomberg 08-28-14

Salient to Investors:

  • The Consumer Financial Protection Bureau reports the share of Americans 65 and older with mortgage debt rose to 30% in 2011 with a median debt adjusted for inflation of $79,000,  from 22% in 2001 with a median debt of $43,400.
  • The increase in mortgage debt makes these households more susceptible to economic swings, increasing the risk of inability to recoup losses.
  • John Gist at George Washington University said reasons include the surge in refinancing in the early 2000s and in the post-recession years, the ability to buy with smaller down payments during the housing boom, and the acquisition of vacation homes. Gist said the highest rates of refinancing occurred among boomers – over half in 2004 and 2007.
  • The median duration of joblessness for adults 65 years and older was 17.8 weeks in July, versus 13.5 weeks for those 25 to 34.
  • Julia Coronado at Graham Capital Mgmt said a mortgage is a source of risk for older households, particularly given the labor market experience.
  • Barbara Butrica and Nadia Karamcheva at Urban Institute said 65% of homeowners with mortgages are still working at age 64, versus 54% of those without housing debt.
  • Greg Frost at Frost Mortgage Banking said boomers will be the first generation to take advantage of reverse mortgages on a large-scale.
  • Donald Frommeyer at the National Association of Mortgage Brokers said boomers do not have the same desire to pay off mortgages as the WWII generation.
  • Sam Khater at CoreLogic said as millennials delay buying homes, they may prolong the trend.
  • Homeownership for Americans 35 years old and younger fell to 35.9% in Q2, 2014, the lowest quarterly level since 1994, and versus the high of 43.6% in 2004.


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Default Risk Rises on 20% of Boom-Era Home-Equity Loans – Bloomberg 08-07-14

Salient to Investors:

  • TransUnion said as much as 20% of home equity lines of credit are at increased risk of default as they switch from interest-only to include principal, causing monthly payments to rise more than 50%.  Ezra Becker at TransUnion said more than half of the outstanding HELOCs have a balance above $100,000,  but most debtors can refinance or absorb the payment increases.
  • Mark Fleming at CoreLogic said an impactful risk to the mortgage finance system or our housing market is harder to see.
  • Ira Rheingold at the National Assn of Consumer Advocates said HELOCs are not sold to investors, so banks have more flexibility to ease terms and have little incentive to foreclose or force a short sale for a loss. Rheingold said settlements between banks and regulators often require lenders to forgive debt or modify mortgages, which borrowers can use to strike better deals.

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Misfit Borrowers Attracting Lenders as Housing Revives – Bloomberg 07-18-13

Salient to Investors:

A growing number of companies are offering financing to consumers with irregular incomes, damaged credit or past foreclosures as the housing market recovers and rising interest rates drive down demand for refinancing.

Keith Gumbinger at said at least a few lenders are starting to dig into the nooks and crannies of borrowing.

Experian  said borrowers with sub-prime scores accounted for 6.5 percent of mortgage originations in 2012 versus 26 percent in 2006. Subprime borrowers are usually defined as those with FICO scores below 620 on the scale of 300 to 850.

Jonathan Corr at Ellie Mae said credit quality of loans originated in May continued a slow loosening that started in January.

Freddie Mac said the average rate for a 30-yr fixed rate conventional mortgage is at 4.37 percent.

The Mortgage Bankers Association predicts refinancing will shrink to 36 percent of mortgage origination activity in 2014 versus 76 percent at the start of May 2013.

Ellen Seidman at  Center for Financial Services Innovation it will take longer for financing to open up to the millions of renters locked out of the market – there are many solid potential first-time home buyers who are going to miss out on a very affordable market. Seidman said the housing market is a ladder and  not stepping on the first rung makes it very hard to sell houses and move up.

Roberto Quercia at University of North Carolina expects more of this lending because we are a nation of pragmatists and the industry will find a way to lend to these families in a sustainable manner – regulations will eventually be revised to reflect the realities of the market.

Cameron Findlay at Discover Financial Services said yields on U.S. 10-yr T-notes above 3.5 percent may help revive the market for private mortgage-backed securities that are necessary to fund non-qualified home loans.

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Diminished Housing Wealth Effect Keeps Pressure on Fed – Bloomberg 05-05-13

Salient to Investors:

The wealth effect from rising house prices may no longer be as effective in spurring the US economy as homeowners increasingly pay down mortgage principal and shorten maturities. Freddie Mac said cash-in refinancings outnumbered cash-outs by more than 2-to-1 in Q4 2012.

Amir Sufi at the University of Chicago said the wealth effect is much smaller and estimates each dollar increase in housing wealth may yield as little as an extra cent in spending – versus 3-to-5-cent estimate by economists prior to the recession. Sufi said homeowners with low credit scores were most prone to pulling money out of their properties during the housing boom.

In Q1 2013, 65 percent of Americans owned their own dwelling, the lowest in almost 18 years and versus more than 69 percent in 2004.

Many homeowners cannot refinance their mortgages because banks have tightened credit conditions so much.

Rob Nunziata at FBC Mortgage is seeing few cash-out refis and more shortening of mortgage terms.

Homeowner equity was $8.2 trillion in Q4 2012, $6.2 trillion in Q1 2009 and $13.5 trillion in 2006.

The S&P/Case-Shiller index of property values in 20 cities rose 9.3 percent in February from a year earlier, the biggest year-to-year advance since May 2006.

Karl Case and Robert Shiller found that changes in housing wealth have a much bigger impact on spending than do variations in financial wealth – due to volatility of stock prices and equity holdings that are concentrated among the rich.

John Stoltzfus at Oppenheimer said Fed easy-money is helping the stock market and is very positive on equities.

David Stevens at Mortgage Bankers Assn said credit will get tighter before it gets easier as Dodd-Frank is just starting to take effect, and lenders await even more regulations before the end of 2013.

Frank Nothaft at Freddie Mac said 10 million homeowners cannot get cash out of their properties through home-equity loans because they are under water.

Neal Soss and Henry Mo at Credit Suisse found that the wealth effect from housing has fallen to just over 3 cents on the dollar from 5 cents, while the effect on consumption from rising stock prices has dropped to just over 1 cent from 1.5 cents. Soss says we need an even bigger bull market, means Fed easing for longer.

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Home Equity Loans Make Comeback Fueling U.S. Spending – Bloomberg 11-26-12

Salient to Investors:

Moody’s forecast home equity lines of credit will rise 30 percent in 2012 to the highest level since the start of the financial crisis in 2008, and rise another 31 percent in 2013. Mustafa Akcay at Moody’s Analytics said lending will keep rising if house prices continue to rise.

The Mortgage Bankers Association forecast the median US home price will gain 8 percent in 2012, the fastest pace since 2005. Home equity in Q2 was the highest level since 2007.

Chris Christopher at IHS Global Insight said homeowners will spend more of their equity, not at the same pace as in 2005 and 2006, and should have a positive impact on consumer spending.

The median economist expects the economy probably to grow 2.2 percent in 2012, and unemployment to average 8.1 percent.

Anika Khan at Wells Fargo Securities said home-equity lenders and borrowers will be more discerning this time.

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