Rates Hit an 18 Month Low!
MARKET UPDATE - JUNE 2019
INTEREST RATES FALL OFF A CLIFF
Ongoing tariff issues with China, and growing concerns over a looming recession, capital pours into Treasuries and Mortgage Back Securities. Long term interest rates fall to their lowest levels since September of 2017; with predictions that even lower rates are in our near future. The 2019 refinance boom is underway.
CONSUMER PROTECTION UNDER ATTACK
The Consumer Financial Protection Bureau has been the target of multiple attacks from the Republican Party since the Trump Administration took office. The CFPB is once again under attack, led by Texas Republican Senator, Ted Cruz.
This month Cruz introduced the bill “Repeal CFPB Act.” No guessing at what the bill is intended to do; eliminate the very agency that was created to protect consumers financial interests.
“During the Obama administration, the CFPB grew in power and magnitude without any accountability to Congress and the people, and I am encouraged by the actions President Trump has begun to take to roll back the harmful impacts of an out-of-control bureaucracy,” Cruz said in 2017.
“There has never been a greater farce and waste of government resources than the Consumer Financial Protection Bureau, and now is the time to eliminate it,” Cruz said in a statement.
“Make no mistake, it does little to protect consumers and was created during the Obama administration to enforce burdensome regulations which have stunted economic growth and negatively impacted small businesses and consumers,” Cruz continued. “I am proud to reintroduce this legislation alongside Senators Lee, Inhofe, Sasse, Rounds, and Blackburn, and urge our colleagues to take this up for a vote in the Senate as soon as possible.”
The bill, if passed, would repeal the Consumer Financial Protection Act of 2010, as well as all laws that have been created by the CFPB; including the Loan Originator Compensation Rule. The Compensation Rule prohibited the fees/compensation to fluctuate based on a loan term or variable (i.e. product type, credit score, term of financing). While long criticized for not allowing for “free markets,” (i.e. charge whatever you can) the Rule did prevent minority classes and those less financially sophisticated borrowers from paying more for a home loan; when mortgage companies actually followed the law. Many industry insiders argue behind closed doors, that since so few companies actually follow the laws or find loopholes to circumvent them, we should repeal them. When followed, the rules created by the CFPB do protect consumers from financial harm. Unfortunately, many of the rules are loosely followed at best, and the CFPB is not regulating or enforcing the very rules created by the agency.
While there have been many attempts in the last couple of years to unwind the CFPB, Cruz has some Senate support. Sens. Mike Lee, R-Utah; Jim Inhofe, R-Okla.; Ben Sasse, R-Neb.; Mike Rounds, R-S.D.; Marsha Blackburn, R-Tenn.; and Rand Paul, R-Ky all are supporting the bill.
“Obama’s administration was all about expanding the size and scope of federal bureaucracy,” Inhofe said. “For almost eight years, the CFPB has held far too much power with virtually no Congressional oversight. I’ve seen how Oklahoma banks are being forced to spend more and more of their time and resources on complying with federal government mandates, and less on their customers—driving up costs for families, small businesses, farmers and ranchers. Eliminating the CFPB is the next step in cutting bureaucratic red-tape for hard-working Americans.”
“The CFPB is an unaccountable regulatory agency created under Dodd-Frank with broad authorities to impose burdensome new rules on the American people – with no oversight from Congress,” Rounds said. “While we’re pleased to see the current administration rein-in the CFPB’s unchecked powers and bring much-needed accountability to the agency until it is completely dismantled, it remains a threat to hardworking families. Abolishing the CFPB is one step we can take to ease the regulatory burdens of Dodd-Frank; I’m pleased to work with Sen. Cruz on this important legislation.”
“The CFPB is the epitome of the overgrown federal bureaucracy,” Blackburn said. “We cannot continue to allow unelected, activist bureaucrats with no accountability to Congress to implement burdensome policies that do more to hurt consumers than to help them.” (housingwire.com)
The CFPB is not a perfect government agency; if one ever existed. Without question, regulation has increased costs to consumers due to the regulatory burden placed on lending institutions. There is always a cost for protection. Since the inception of the CFPB, the stock market has hit and maintained historic highs, equity in the U.S. housing market is at an all-time high, and with the exception of 2018, lending institutions have posted record profits. Regulation has been cumbersome and far from perfect, but it would be hard to argue that it has “stifled” growth. Without question, it has protected minority classes and under-informed consumers from being taken advantage of and slowed the likelihood of another mortgage meltdown like that experienced in 2008.
TOP CFPB OFFICIAL RESIGNS
Eric Blakenstein who was appointed by Trump to the CFPB as one of the highest paid government employees is resigning. Blankenstein came under attack for blogging in 2004 with which he claimed that most hate crimes were a hoax and whether the “N” word was racist.
“I am pleased to see that he will soon be departing from a job he was clearly unqualified for,” Waters said. “The Office of Fair Lending and Equal Opportunity is a critical division of the Consumer Bureau that has been significantly weakened under the leadership of Trump appointees, and it comes as no surprise that the agency has not issued one public fair lending enforcement action since the departure of Director Cordray.”
A backlash from fellow staffers and several politicians lead to the resignation.
HOME PRICES CONTINUE TO RISE
In a new report from RedFin, national homes sale prices rose in April 2.8% over 2018 values. The median home price now sits at $307,000.
Despite the year over year increase in home values, the tendency seems to be taking a downward turn. April values over March values posted the first decline in home values since February of 2012, account to the Zillow Real Estate Market Report. 32 of the 35 largest housing markets experienced a decline in home values.
"The widespread decline in home value growth in April – the first in many years – will turn heads,” said Zillow Director of Economic Research Skylar Olsen. “But it's too early to say if we've hit another national home value peak and are at the beginning of a sustained downturn, or if this is just a bump in the road.”
“Month-over-month numbers are volatile, and this small decline could reverse itself before the year is out and before national home values go negative on a year-over-year basis,” said Olsen. “That said, the likelihood that home values have peaked in several local markets is real. The price correction in these areas should continue after years of significant home value growth that substantially outpaced income growth." (Mortgage Professional America)
The downturn in home values may lead to a healthy housing market as we return to affordability.
WORST QUARTER SINCE THE FINANCIAL CRISIS OF 2008
New data from the Federal Reserve Bank of New York’s Center for Microeconomic Data shows that the first quarter of 2019 may have been the worst quarter for the mortgage industry since 2008. This was largely due to the overall lack of refinance transitions, despite falling interest rates.
Mortgage refinance transactions hit their lowest level in over ten years. This is bad for profitability. Black Knight reported that nearly 5 million homeowners could benefit from a rate in term refinance; lowering their interest rate an average of 0.75%. Home equity is also at an all-time high, as is consumer debt topping $4 Trillion, the number of homeowners that would benefit from cash out transactions is staggering.
Interest rates have fallen substantially since the study was conducted. The number of homeowners that would benefit from a refinance is considerably higher today.
OREO OR REO
You can’t expect a neurosurgeon, turned Secretary of Housing and Urban Development (what???) to know what “REO” means. During a House Financial Services Committee hearing in May, HUD Secretary, Ben Carson confused REO, or Real Estate Owned, with OREO; the cookie.
Rep. Katie Porter, D-Calif., asked the HUD secretary to explain the disparity in REO rates between the Federal Housing Administration and Fannie Mae and Freddie Mac. But she paused when Carson appeared unfamiliar with an REO, asking him if he knew what it was. “An Oreo?” Carson responded.
“Owned, real estate owned,” Porter said. “That’s what happens when a property goes into foreclosure. We call it an REO, and FHA loans have much higher REOs — that is, they go to foreclosure rather than to loss mitigation or to non-foreclosure alternatives like short sales than comparable loans at the GSEs. So I’d like to know why we’re having more foreclosures that end in people losing their homes with stains to their credit and disruption to their communities and their neighborhoods at FHA than we are at the GSEs.” (National Mortgage News)
The HUD Secretary may not know what REO means, but he does have a sense of humor. Unfortunately, REOs is a critical part of what HUD does, and it is unnerving that the Secretary is unaware of such a vital component of what HUD does.
HUD ROLLING BACK PROTECTIONS
The Department of Housing and Urban Development (HUD) has just proposed a new rule to roll back housing protections for all.
The Department of Housing and Urban Development on Wednesday proposed a new rule that would weaken Obama-era protections for homeless transgender people, allowing federally funded shelters to deny people admission on religious grounds or force transgender women to share bathrooms and sleeping quarters with men.
The proposed rule comes one day after HUD Secretary Ben Carson assured members of Congress the agency had no plans to eliminate the 2012 Equal Access Rule, which barred federal housing discrimination on the basis of sexual orientation or gender identity.
According to an article in The Washington Post:
In 2017, the HUD website removed links to documents that guided emergency shelters on how best to serve transgender people facing homelessness and comply with agency regulations. It also withdrew policy proposals requiring HUD-funded emergency shelters to post notices informing people of LGTBQ rights and protections.
When questioned whether LGBTQ people should receive protections under fair housing laws, Secretary Carson reportedly said it was a congressional duty “to do something different” about the definition of gender. According to the article, Representative Jennifer Wexton (D-VA) has since challenged Carson’s stance. (housingwire.com)
“Yesterday, I asked Secretary Carson directly if he was anticipating any changes to HUD’s Equal Access Rule and he said no. The announcement today that HUD will now allow anti-trans discrimination in shelters demonstrates that he either lied to Congress or has no idea what policies his agency is pursuing. Either way, it’s unacceptable," Wexton said in a statement.
Housing protection, for some.
Existing home sales fell 4.4% year over year in April, and 0.4% from March according to a new report from the National Association of Realtors.
According to a report from the Department of Housing and Urban Development, new home sales also dropped in April. While the sales are still up 7% over last year, the sales plummeted 6.9% from March.
Strong employment numbers and falling interest rates are predicted to turn the market positive once again in the near future. Demand is still strong, and with falling interest rates, homes are becoming more affordable. The lynchpin will be the U.S. economy. If a recession occurs, there will be downward pressure on interest rates, and home values.
DOJ INVESTIGATES NAR
The Department of Justice is actively investigating allegations of antitrust violations by NAR, and ultimately all real estate companies. Currently, there are two class action lawsuits against the National Association of Realtors and multiple real estate brokerages, including Realogy, RE/MAX and Keller Williams; to name just a few. The lawsuits claim that NAR and MLS providers (nearly all real estate companies) have conspired to drive up seller costs by requiring the seller to pay compensation to the buyer’s agent. A common practice by most real estate companies.
If the DOJ finds that antitrust violations have occurred, and if either class action lawsuit is successful, the methods in which real estate transactions will be carried out in the future will be forever changed. Furthermore, the overwhelming majority of real estate transactions that have closed in the past could have legal exposure.
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RATE WATCH – LOWER
PROGRAM RATE APR
30 Year Fixed 4.125% 4.269%
15 Year Fixed 3.750% 3.915%
APPLY ONLINE: www.louisbaca.com
Interest rates as of 05/31/2019. Conforming interest rates. Interest rates and APR based on loan amount not to exceed $484,350. Loan to value not to exceed 80%. 740+ credit score. Owner occupied only. Purchase and rate in term refinance. Not all applicants will qualify. Call today for your individual scenario rate quote.