Educational Commentary

Special Real Estate Report: Scores to Get a Boost?

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Credit Reporting Changes

Because of improved standards for utilizing new and existing public records, the three major credit reporting companies are now excluding all tax liens from credit reports. That means some scores will head higher. Credit scores, notably those from FICO, one of the largest credit scoring companies, generally range from 300 to 850. A good credit score generally is above 700, and those over 760 are considered excellent. Credit reporting and scores play a key role in most Americans’ daily life. The process can determine the interest rate a consumer is going to pay for credit cards, car loans and home loans — or whether they will get a loan at all.

The new rules come following a study by the Consumer Financial Protection Bureau that found problems with credit reporting and recommended changes to help consumers. Incorrect information on a credit report is the top issue reported by consumers, according to the bureau. Last July, credit reporting companies removed nearly 100 percent of civil judgment data and about 50 percent of tax lien data from credit reports. Effective mid-April, the rest has been removed. LexisNexis Risk Solutions predicts that about 11 percent of the population will have a judgment or lien removed from their credit file, according to the company’s own estimate. Once that information is stripped out, credit scores may go up by as much as 30 points overall, LexisNexis found. LexisNexis also provides lenders with data to make decisions on consumer loans.

Other industry groups have said these changes will have less of an impact. “Analyses conducted by the credit reporting agencies and credit score developers FICO and VantageScore show only modest credit scoring impacts,” Eric Ellman, a senior vice president of the Consumer Data Industry Association, said in a statement when the changes were first announced. The association represents Equifax, Experian and TransUnion, the three largest credit reporting companies.

Source: CNBC

Special Real Estate Report: Time to Say Goodbye to Your Adjustable?

Increases Coming
Increases Coming

Increases Coming

Most homeowners with adjustable-rate loans could experience their first interest rate increase if the low-interest-rate environment ends, according to survey results released by HSBC. The study revealed that 87% of US homeowners have never experienced a rate increase on their home loan. “From a homeowner’s perspective, we’re heading into unfamiliar territory,” said Pablo Sanchez, HSBC’s regional head of retail banking and wealth management for HSBC Bank USA. “The average US homeowner is already spending almost 40% of their monthly income on their housing payment. When you factor potential interest-rate rises into household budgets, making that monthly payment could become a struggle.”

“The good news is that US homeowners are well-informed about their home loans,” Sanchez said. The survey found that 81% of US homeowners are aware of how much interest they are paying while 79% are aware of their loan terms. Although increasing rates are a concern, HSBC said homeowners continue to have options.

Fifty-two percent of homeowners have switched providers and 46% have studied switching their loan to get a better deal. According to the survey, 53% of those who switched were primarily driven by a desire to obtain a better deal or because of increases in their rates. Other reasons homeowners switched included moving or buying a new property with 19% and the expiration of their existing loan terms with 12%.

Source: Mortgage Professional America

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The Rate Factor: The Special Real Estate Report

Sense of Urgency
Sense of Urgency

Sense of Urgency

All good things come to an end—even low interest rates on home loans. They’ve been steadily rising and are poised to climb even higher this year. When they do, the cost of buying a home will rise as well. This could make the challenges of today’s buyer’s market even worse for some prospective purchasers—particularly first-time buyers, having to settle for smaller abodes, fixer-uppers (in the real sense, not the TV sense), and homes farther out where real estate is cheaper. Rates on home loans are expected to go up even more as the Federal Reserve raises short-term interest rates.

The new Fed chairman, Jerome H. Powell, says the Fed is likely to gradually increase them this year. It is expected to bump up rates at least three times this year, in 0.25% increments. “For the bulk of buyers, it’s not going to kill their decision to purchase a home.

If anything, it will get them off the fence by creating a sense of urgency,” says Rick Palacios Jr., director of research at John Burns Real Estate Consulting. Higher rates are “a kick in the pants for you to start thinking seriously about buying.” “Buyers thought they could wait forever because rates were going to stay low forever,” says Palacios. “They’re starting to realize if they’re going to buy they should probably buy now.”

Source: Realtor.com

Employment Report: The Weekly Market Update

Jobs -- Jobs -- Jobs
Jobs -- Jobs -- Jobs

Jobs - Jobs - Jobs

The job numbers for March give us another indication of where our economy is headed in the short-term. The headline numbers showed 103,000 jobs added and an unemployment rate of 4.1%. While the number of jobs added was disappointing, the report followed a very high number of jobs added for the previous month which was not revised downward. In addition, each month we look at wage growth to see whether inflation is starting to rear its ugly head. March saw wage inflation in line with expectations — a good sign.

The markets are also watching for movements in the labor participation rate, as this measure tells us where there is potential for growth in employment. Even though the headline numbers say that we are at full employment, there are millions who are available to come back into the workforce. When there is more demand for workers, those who are not participating are more likely to become employed, thus raising the labor participation rate. In March, the labor participation rate fell slightly from a five month high and thus there continues to be room for improvement within this indication.

Considering that the markets have turned much more volatile since the first of the year, what do these numbers tell us? To answer that question, we must understand why the markets seem to be uneasy. It is very easy to blame rising interest rates and certainly the movement of rates is a factor. But we must also remember that the markets have had quite a run and there is always a concern as the when the markets might lose some energy. In reality, there are several factors at work and the jobs numbers only serve to put one other factor into the pot which is being stirred enthusiastically this year.

The Weekly Market Update

Rates on 30-year fixed home loans moved down last week. For the week ending April 5, Freddie Mac announced that 30-year fixed rates fell to 4.40% from 4.44% the week before. The average for 15-year loans also decreased to 3.87% and the average for five-year adjustables also moved down to 3.62%. A year ago, 30-year fixed rates averaged 4.10%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- “After dropping earlier this week on trade-related anxiety in the financial markets, the benchmark 10-year Treasury stabilized on Wednesday, but at a level slightly lower than from the start of last week. Rates on home loans followed suit for the second consecutive week. Though rates on 30-year fixed loans are up 0.3 percentage points from the same week a year ago, a robust labor marking is helping home purchase demand weather modestly higher rates.”

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Self-Employed Conundrum: Special Real Estate Report

Dealing with Write-Offs
Dealing with Write-Offs

Dealing with Write-Offs

Self-employed workers have a hard time demonstrating to residential lenders that they meet income requirements, according to The Wall Street Journal. Since self-employed workers don’t receive a W-2, lenders have to consult tax returns to verify the applicant’s income. The WSJ reports — That’s a challenge for lenders, because on one hand, self-employed applicants need to show enough income to qualify for a home loan. On the other hand, they want to lower their taxable income by taking deductions and write-offs that they’re legally entitled to.

Self-employed business owners will often write-off personal and business expenses, such as office equipment and car leases. For this reason, net income reported on a tax return may not be an accurate reflection of business earnings, the report continues. WSJ offers tips for self-employed applicants: find a good accountant who can explain business cash flow to a potential lender and find a lender with enough experience to understand a self-employed applicant’s tax return.

Source: BUILDER

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