Adjustable-rate mortgages (ARMs) allow borrowers to pay lower interest rates on their loan for a set period, after which the rates get changed. The 7/1 ARM means that for seven years the borrower’s interest rate will remain fixed. That’s a clear advantage the 7/1 ARM has over other ARMs with shorter fixed-rate periods.
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However, they also run the risk of potentially higher mortgage payments at the end of the seven years. Whether the rates increase or decrease is determined by
In years when interest rates are low, ARMs are less popular than fixed-rate mortgages. When the opposite is true, borrowers prefer to risk a higher rate in the future in exchange for reduced interest payments now.
Prepayments, apparently spurred by the recent retreat in interest rates, soared in May. Black Knight Financial Services, in its "first look" at the month's mortgage performance data, said there was a 23 percent increase in prepayments, historically a good indicator of refinancing activity, from April to May, bringing the incidence to the highest so far in 2017, 1.06 percent.
The company said the first quarter of this year was a bad one for refinancing, with originations falling 45 percent from the fourth quarter of 2016 as interest rates took off. However, the easing of rates over the last few months may change the outlook for the second and third quarters, a projection that seems to be confirmed by the increase in prepayments.
With rates back below 4 percent, Black Knight said the number of homeowners that could benefit from refinancing is at the highest level this year, 4.4 million, an increase of 1.6 million just since mid-March. These refinancing candidates could save an average of $260 per month on their mortgage payments with 2.5 million saving between $100 and $300 each month and nearly three-quarter million realizing a reduction of $400 or more.
May data shows delinquencies reversing their April increase, declining 7.13 percent month-over-month and by 10.78 percent since May 2016. The delinquency rate is now 3.79 percent, with 1.93 million mortgages 30 or more days past due, but not in foreclosure. This is 145,000 loans fewer than in April and 226,000 fewer than a year earlier. Of the total, 562,000 are seriously delinquent, over 90 days past due but not in foreclosure.
Foreclosure starts increased in May by 5.68 percent to 55,800 loans. The foreclosure inventory, loans that are actively in foreclosure, declined by almost 3 percent from April and nearly 27 percent from May 2016 and now represents 0.83 percent of mortgage homes. The number of properties in foreclosure at the end of May was 421,000. Both the foreclosure inventory and the number of properties that were seriously delinquent hit 10-year lows during the month.
At the end of May there were 2.35 million properties that were 30 or more days past due or in foreclosure, down 379,000 from a year earlier.
The highest rate of delinquencies was in Mississippi at 10.16 percent, a -8.4 percent annual change. The state was distantly trailed by Louisiana at 8.68 percent. Just 2.12 percent of Colorado borrowers are past due on mortgage payments, the lowest rate of any state.
Black Knight will provide a more in-depth review of this data in its monthly Mortgage Monitor report, which will be published on July 10.
Consumers may be one step closer to a higher credit score.
A recent report by the Consumer Financial Protection Bureau outlined a number of problems it found with the big three consumer reporting companies along with suggested reforms that could help consumers improve the accuracy of their own credit reports as well as those all-important three-digit scores.
The watchdog agency said Equifax, Experian and TransUnion had insufficient quality control systems and did not conduct reasonable investigations when consumers disputed something in their files.
The government also laid out a number of ways to improve the accuracy and operation of the credit scoring companies to prevent or fix the errors in the reports that lenders use to assess borrowers' creditworthiness and set rates. For starters, the agency advocated stricter identity-matching criteria and updating records more frequently.
Incorrect information on a credit report is the top issue reported by consumers filing a complaint, according to the CFPB.
"Equifax, Experian and TransUnion continually seek ways to ensure the data they maintain on their consumer credit files is accurate and current," Eric Ellman, interim president and CEO of the Consumer Data Industry Association, which represents the three major credit reporting companies, said in a statement to CNBC.
To that end, improved standards to new and existing public records in their databases will be implemented on July 1, the CDIA said. And as part of this change, some civil debts and tax liens will be excluded, which means some credit scores will edge higher.
Removing that negative information could boost scores for roughly 12 million consumers by up to 40 points or more, according to The Wall Street Journal citing FICO data. Analyses conducted by the credit reporting companies, along with FICO and VantageScore, showed more modest credit scoring impacts.
Credit reporting and scores play a key role in Americans' daily life. The process can determine the interest a consumer is going to pay for credit cards, car loans and mortgages — or whether they will get a loan at all.
This report comes on the heels of an enforcement action against Equifax and TransUnion and their subsidiaries, announced in January. The CFPB said then that the companies deceived consumers about the value of the scores the companies sold them.
As part of that action, the companies must pay more than $17.6 million in restitution to customers, plus $5.5 million in penalties to the government.
"Finally, after decades of problems and complaints, supervision by the CFPB has resulted in the big three credit reporting companies starting to fix, or to develop, systems to promote accurate reporting and properly correct errors," National Consumer Law Center staff attorney Chi Chi Wu said in a statement.
"This is an important first step, but it is a work in progress and could be stopped dead in its tracks if the CFPB loses its supervision powers or is otherwise hampered in its mission," she added.
The CFPB has come under fire by the Trump administration with the White House and congressional Republicans exploring ways to fire CFPB director Richard Cordray if not abolish the office altogether.
In this most recent report, the CFPB may also be trying to tout the ways they are helping consumers, said Bill Hardekopf, credit card expert and CEO of Lowcards.com. "The bottom line is, while there may be some politicking, consumers can benefit by some of those suggestions."
If the CFPB reforms fix the deficiencies in those companies' operations, consumers will benefit to the tune of potentially billions of dollars, the National Consumer Law Center said.
While winter time usually means a decline in home sales, California just saw its first increase in home sales between December and January since 2012, a sign that the Golden State could be in for a strong housing year.
The data comes courtesy of a new report from the California Association of Realtors, which shows that closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 420,100 units in January.
That’s up 2.1% from the 411,430 level in December 2016, and up 4.4% when compared with home sales in January 2016 of a revised 402,220.
Another positive sign for California is a decrease in median sales price, which might not normally be a harbinger of good things to come in real estate, but in this case, the decline is lower than normal.
According to the CAR report, the median price of an existing, single-family detached California home fell 3.8% from a revised $508,870 in December to $489,580 in January.
That also marked the first time in since March 2016 that California’s median sales price fell below half a million dollars.
But as CAR’s report notes, the decline from December to January is smaller than normal, which indicates health in the market.
“Since 2011, price declines from December to January have usually ranged from -11.7% to as little as -4.6%, but January's 3.8% monthly smaller price decline suggests that price pressure remains relatively robust and could translate into additional price growth as the spring and summer home-buying seasons near,” CAR’s report states.
CAR President Geoff McIntosh suggests that the high prices in markets like San Francisco is driving buyers to seek lower priced options in nearby cities.
“California's housing market continues to be defined by the higher-priced, coastal markets and the less expensive, inland areas that still offer access to major employment centers,” McIntosh said.
“For example, eroding affordability and tight housing inventory are pushing buyers away from the core Bay Area markets of San Francisco, San Mateo, and Santa Clara and into less expensive bedroom communities, such as Contra Costa, Napa, and Solano,” McIntosh continued. “In Southern California, an influx of buyers from coastal employment areas into the Inland Empire drove healthy year-over-year sales in Riverside and San Bernardino.”
While the current market conditions look promising for California, CAR’s senior vice president and chief economist, Leslie Appleton-Young, notes that rising interest rates could hamper the state’s housing economy.
“January's sales increase was likely boosted by rising interest rates, which have risen sharply since the election and have given buyers an incentive to get off the sidelines and close escrow before rates go higher,” Appleton-Young said. “Yet, future anticipated rate hikes will increase the cost of homebuying and could have an adverse effect on affordability and future home sales.”
Despite the regulations imposed by the Truth-in-Lending/RESPA Integrated Disclosure (TRID) rules and disclosure forms in October 2015, some homebuyers still say their final closing costs caught them by surprise. Some appear to have been unaware that closing costs were even required.
ClosingCorp, a provider of real estate closing cost data and technology, has released results of a new on-line survey that explored whether TRID has helped consumers better understand the closing costs associated with purchasing a home. The survey, commission by ClosingCorp and conducted by Wilson Perkins Allen Opinion Research, was conducted in early January, among 1,000 adults nationwide who had purchased a home during the 12 months ended on January 1, 2017.
When asked what surprised them about their closing costs, 31 percent of homebuyers were not surprised at all about their closing costs because their loan estimates and closing fees matched. However, 35 percent expressed surprise that their costs/fees were higher than expected while 17 percent said they hadn't expected they would be required at all. (sidenote: how does that even happen?!)
The top five closing costs that most surprised homebuyers were:
1. Mortgage insurance (24 percent)
2. Bank fee/points (23 percent)
3. Taxes (22 percent)
4. Title insurance (21 percent)
5. Appraisal fees (20 percent) and fees paid by the buyer vs. seller (20 percent).
Fifty-eight percent of respondents said their initial loan estimate had changed or been revised prior to closing. Sixty-seven percent of those saying their estimates were changed were residents of the Northeast and 63 percent of had home values between $500,000 and $1 million.
Buyers said the fee estimates most frequently changed were closing costs (12 percent), insurance costs (6 percent) and taxes (5 percent).
The most common reason homebuyers cited for revisions to their closing costs was changes to the loan based on what they qualified for (31 percent). Other reasons given were inaccuracies in the estimate (27 percent) and a change to the loan because of a homebuyer request (23 percent.)
The majority of respondents, 72 percent, said their loan estimates and closing disclosures were delivered electronically. ClosingCorp pointed out that was also the percentage of all respondents falling into the Millennial age group.
Half of all homebuyers said they selected had picked the title company involved in their closing. Of those who did not, 35 percent said their real estate agent had selected it for them. The report said this suggests that agents, as the homebuyers "first touch point," have a lot of influence on their customers.
Bob Jennings, chief executive officer of ClosingCorp said, "As more and more Millennials become first-time homebuyers, TRID or Know Before You Owe has made it easier for them to understand the costs and fees they'll face at closing. Yet there are still surprises during the closing process. Lenders and realtors need to keep educating borrowers on the costs and fees associated with closing to alleviate surprises."
"In addition, our survey shows that 52 percent of lenders were 'off' on their initial loan estimates, so there's significant room for improvement. Using automated fee technology can help prevent lenders from under- or over-estimating closing costs and mitigate the risk of costly variance issues post-closing."