Here’s the Real Reason College Grads Aren’t Getting Homes


The debt cycle goes psychological.

StudentDebtA recent post from Liberty Street Economics, the blog from the Federal Reserve Bank of New York, gave the public finance perspective on student loan debt.

As you all may be aware, the current administration is looking at ways to help college students receive a greater proportion of tuition assistance.

The Fed’s Director of Research, James McAndrews, in remarks to the National Association of College and University Business Officers, cited higher tuition costs coupled with more people attending college as the primary reason for the big jump in the nation’s student loan debt.

Which, by the way, is jaw-droppingly staggering:

“Between 2004 and 2014, the total student debt in the U.S. tripled from $364 billion in 2004 to $1.16 trillion in 2014,” he said.

That’s a lot of debt. And we know it’s keeping grads from buying homes.

But there is more to it, when looking deeper at the numbers. And, by doing so, we can learn how this debt is shackling generations out of the housing market.

Warning: There is no near-term upside to this conclusion.

In McAndrews’ remarks, we learn that college grads aren’t just renting because they’re waiting to pay down student loan debt first.

No, it’s much worse. In truth, more and more college grads can’t even pay down their student debt in the first place!

Read this passage, the bolding is mine:

So what is causing the withdrawal from home and car purchase markets? It is likely that rising student debt and an uncertain economic outlook have depressed demand. But most likely, declines in credit supply play an important role as well. Our analysis shows that average credit scores have fallen for student debt holders relative to those with no student debt. Clearly for the substantial and growing group of student loan borrows who are delinquent or have defaulted on their debt, access to credit is reduced through potentially long-lasting negative effects on credit scores. Better data is required to evaluate the extent to which the decline in car and home loan originations is concentrated among those delinquent on their student loans and those who dropped out of college, or whether it is more widespread among all those with student loans.

As of the fourth quarter of 2014, about 17%, or 7.3 million borrowers, were 90 days or more delinquent on their student loan payments. That’s nearly double the rate in 2004.graduate-coming-home

But more worrying is that the more delinquent, the more likely one is to still live with their parents. And let’s be honest, an extended period of living at home leads to behavioral changes over time. The longer they stay, the less likely they feel an immediacy to leave.

As Raphael Bostic said, at some point, they’ll eventually pair up and move on.

But in the meantime, questions remain as to when any meaningful change to the tuition-financing mechanisms may actually take place.

McAndrews makes the case that none of this should ultimately prevent someone from getting a college degree. Lifetime earnings, he says, will eventually even it out.

Having employed and managed more than a few college grads in my time at HousingWire, I strongly disagree. I’ve seen firsthand how little a job can help dissolve one’s psyche when crippled by massive student loan debt.  It’s common and it’s a curse.

The Fed is looking for solutions, but so far has more questions than answers, and though it clearly wants to reform the system, it doesn’t yet know how.

“We at the New York Fed will continue to search for new facts to put on the table and push the debate forward,” said McAndrews, and I believe him.

Especially after learning how awful it can be for these college grads with little financial freedoms. They are those robbed of both their choice and their liberty to create a community.

It’s one thing to sacrifice short-terms hopes and dreams at the expense of higher education.

It’s another, more real and more tragic, phenomenon to lash financial neophytes with mountains of debt that cannot even be discharged in bankruptcy.

For these graduates, there is literally no way out anytime soon. And though that’s the real reason they aren’t buying homes, it’s also not the real reason we need to be worried.

By Jacob Gaffney/

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Saying Goodbye to Real Estate as We’ve Known It (The End of the HUD-1 Era)


RIP HUD-1It’s time to say goodbye to real estate closings as we’ve known them for the last several years.  The infamous HUD-1 Settlement statement, which is used by title companies and closing attorneys in nearly every real estate transaction, is officially being retired.  The much-maligned and often criticized Consumer Financial Protection Bureau (birthed out of the chaos from the mortgage and real estate meltdown of the Great Recession) has implemented a new rule, set to go into effect October 3rd, 2015, that will significantly change the closing process.

The new CFPB law is set to outline new rules for integrated mortgage disclosures, and involves forms required under both the Truth-in-Lending Act (TILA) and the Real Estate Settlement and Procedures Act (RESPA).  Instead of the current “Good Faith Estimate”, a new “Loan Estimate” will take its place.  Additionally, the long trusted HUD-1 Settlement Statement will be replaced with a new form referred to as the “Closing Disclosure”.

For those of you who are new to the real estate business, The HUD-1 Settlement form, is used to itemize fees and services charged to the borrower, by the lender or broker, when they apply for a real estate loan.  It is usually delivered to the buyer one day prior to the closing, and is an important form to review, as it accounts for all charges and credits (your MONEY!).  The HUD-1 Settlement statement includes both credits and deductions taken from each party and helps determine the total amount the buyer is required to bring to closing, and how much the seller will receive as a result of the sale.

While I know HUD-1’s aren’t exactly the sexiest topic for a blog post (unless you’re a real estate nerd like me), but since they are used in nearly every real estate closing, it’s definitely a form you should familiarize yourself with, and you should also understand the changes that are coming in the next couple of months.

Closing Disclosures

Starting this summer, creditors must now provide a new final disclosure, which reflects the actual terms of the transaction.  This is known as a Closing Disclosure.  The form, the H-5 form (pg. 55) integrates and replaces the final TIL disclosure and the existing HUD-1 for these transactions.  Unlike the HUD-1, the new form is longer, and must be delivered three-business-days before consummation of the loan.  So don’t forget the date!

General Requirements (Good Terms to Know!)

  • The Closing Disclosure must contain the actual terms and costs. Creditors may estimate when these are not readily available, but are expected to provide corrected disclosures, containing the actual terms, at or before consummation.
  • The disclosure must be in writing, with the information prescribed in § 1026.38 of the CFPB.
  • A three-day waiting period may be allowed if the creditor provides a corrected disclosure. This in turn, may also allow a three-day grace period for the consumer, prior to consummation.

 Consummation not Closing – There’s a Difference Now!

Although consummation seems similar to settlement or closing, as it commonly occurs at the same time, you should be aware that the two events are considered legally distinct. Consummation begins at the point in time when the consumer becomes contractually obligated to the creditor on the loan. When this may occur, generally depends on your State law. You should always verify your State laws to ensure a timely delivery of the Closing Disclosure.

Change can be Good

Ushering in a new system, into what had become a well-oiled machine, can be an incredibly daunting task. This is why the original date to implement these changes of August 1st has already been pushed back twice, and also includes a “grace period” that is expected to last until the end of the year. However, this change might come as a breath of fresh air, as not only are consumers better protected, but it puts more transparency on a market that has been roundly criticized since the market crash of 2007/2008.

What are your thoughts on the new changes? I’d love to hear your thoughts in the comments section below!

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Google Launches Built-in Mortgage Calculator


Consumers will be able to calculate mortgage payments within Google searches.

Lenders who were unhappy with the Consumer Financial Protection Bureau’s new mortgage payment calculator will soon have a new target for their ire, Google (GOOG).

That’s because the internet search monolith began very quietly rolling out a mortgage payment calculator of its own on Tuesday. The built-in mortgage calculator will apparently appear when a user searches for terms like, “mortgage calculator,” “loan interest calculator,” and “interest calculator.”

The native mortgage calculator was first spotted by HousingWire searched for Google’s mortgage calculator and found it on an Android-powered phone.

We also captured a screenshot of the tool in action:

 Google calculator

While the roll-out of the Google mortgage calculator seems to be limited thus far, Google did share some news on the mortgage calculator on its Google+ page.

“Preparing for homeownership just got a bit easier,” Google’s post states. “Starting today you can ask Google things like ‘How much can I borrow at $200 a month?’ or ‘At 5% APR how much can I borrow over 10 years?’ You can even adjust the mortgage amount, interest rate, mortgage period and more to see which financial options fit your needs?”

Google’s foray into the land of mortgage calculation comes on the heels of the controversial “borrower education tool” from the CFPB. As part of the “Owning a Home” consumer tool, the CFPB included “Rate Checker,” which it touted as a tool to help consumers understand what interest rates may be available to them by using the same underwriting variables that lenders use on their internal rate sheets.

“In other words, we are giving consumers direct access to the same type of information that the lenders themselves have,” CFPB Director Richard Cordray said at the time.

The CFPB’s tool was met with angst from mortgage lenders, including the Mortgage Bankers Association. The MBA suggested the Rate Checker mentions rates and costs without including disclosure items TILA_RESPA rules and the CFPB mandate for borrowers – annual percentage rate, closing fees, etc.

Essentially, mortgage bankers said that if the Rate Checker were a lender advertisement or mortgage calculator, it would violate the CFPB’s disclosure rules.

Google even included a screenshot of what its mortgage calculator looks like on a mobile phone. Click the image below to take a larger look at what Google’s mortgage calculator looks like. Google calculator2.jpg

“It sets borrowers up for severe disappointment,” David Stevens, president and CEO of the Mortgage Bankers Association, told HousingWire. “It should be taken down.”

Stevens says that the tool doesn’t inform borrowers of a host of other costs that lenders are required to disclose under TILA-RESPA, such as closing costs, APR, and other charges and fees, Stevens added.

“This tool has none of that. It gives borrowers none of that,” Stevens said. “It could allow lenders to rate bait the market.”

The third-party tool offers accurate but incomplete information, Stevens added.

The CFPB’s response, in a note to HousingWire, appeared unequivocal. The Rate Checker is not coming down.

“The Rate Checker is an educational tool, and part of a larger suite of tools to help consumers be more informed and effective mortgage shoppers. The Rate Checker does not connect consumers with lenders,” a spokesperson for CFPB told HousingWire.

Other details of Google’s mortgage calculator, such as whether if features details on closing costs, fees, etc. are currently unknown, but HousingWire will continue to monitor the situation to see if Google’s mortgage calculator becomes a permanent feature or just a flash in the digital pan.

By Ben Lane Reprinted from Housingwire

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CoreLogic: More Than 1 Million Homeowners Regained Equity in 2014


5.4M properties still underwater as of 4Q14

Regaining Equity2Some 1.2 million borrowers regained equity in 2014, bringing the total number of mortgaged residential properties with equity at the end of Q4 2014 to approximately 44.5 million or 89% of all mortgaged properties, according to CoreLogic (CLGX).

Nationwide, borrower equity increased year over year by $656 billion in 4Q14. The CoreLogic analysis also indicates approximately 172,000 U.S. homes slipped into negative equity in the fourth quarter of 2014 from the third quarter 2014, increasing the total number of mortgaged residential properties with negative equity to 5.4 million, or 10.8% of all mortgaged properties.

This compares to 5.2 million homes, or 10.4%, that were reported with negative equity in Q3 2014, a quarter-over-quarter increase of 3.3%. Compared to 6.6 million homes, or 13.4%, reported for Q4 2013, the number of underwater homes has decreased year over year by 1.2 million or 18.9%.

“The share of homeowners that had negative equity increased slightly in the fourth quarter of 2014, reflecting the typical weakness in home values during the final quarter of the year,” said Frank Nothaft, chief economist for CoreLogic. “Our CoreLogic HPI dipped 0.7% from September to December, and the % of owners ‘underwater’ increased to 10.8%. However, from December-to-December, the CoreLogic index was up 4.8%, and the negative equity share fell by 2.6 percentage points.”

Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

For the homes in negative equity status, the national aggregate value of negative equity was $349 billion at the end of Q4 2014. Negative equity value increased approximately $7 billion from $341.8 billion in Q3 2014 to $348.8 billion in Q4 2014.

On a year-over-year basis, however, the value of negative equity declined overall from $403 billion in Q4 2013, representing a decrease of 13.4% in 12 months.house_mortgage_underwater_life_preserver_304

Of the 49.9 million residential properties with a mortgage, approximately 10 million, or 20%, have less than 20% equity (referred to as “under-equitied”) and 1.4 million of those have less than 5-percent equity (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall. In contrast, if home prices rose by as little as 5%, an additional 1 million homeowners now in negative equity would regain equity.

“Negative equity continued to be a serious issue for the housing market and the U.S. economy at the end of 2014 with 5.4 million homeowners still ‘underwater’,” said Anand Nallathambi, president and CEO of CoreLogic. “We expect the situation to improve over the course of 2015. We project that the CoreLogic Home Price Index will rise 5% in 2015, which will lift about 1 million homeowners out of negative equity.”

Here are some highlights:

  • Nevada had the highest percentage of mortgaged properties in negative equity at 24.2%; followed by Florida (23.2%); Arizona (18.7%); Illinois (16.2%) and Rhode Island (15.8%). These top five states combined account for 31.7% of negative equity in the United States.
  • Texas had the highest percentage of mortgaged residential properties in an equity position at 97.4%, followed by Alaska (97.2%), Montana (97.0%), Hawaii (96.3%) and North Dakota (96.2%).
  • Of the 25 largest Core Based Statistical Areas (CBSAs) based on mortgage count, Tampa-St. Petersburg-Clearwater, Fla., had the highest percentage of mortgaged properties in negative equity at 24.8%, followed by Phoenix-Mesa-Scottsdale, Ariz. (18.8%), Chicago-Naperville-Arlington Heights, Ill. (18.5%), Riverside-San Bernardino-Ontario, Calif. (14.8%) and Atlanta-Sandy Springs-Roswell, Ga. (14.6%).
  • Of the same largest 25 CBSAs, Houston-The Woodlands-Sugar Land, Texas had the highest percentage of mortgaged properties in an equity position at 97.7%, followed by Dallas-Plano-Irving, TX (97.1%), Anaheim-Santa Ana-Irvine, Calif. (96.4%), Portland-Vancouver-Hillsboro, Ore. (96.4%) and Denver-Aurora-Lakewood, Col. (96.2%).
  • Of the total $349 billion in negative equity, first liens without home equity loans accounted for $185 billion aggregate negative equity, while first liens with home equity loans accounted for $164 billion, or 47%.
  • Approximately 3.2 million underwater borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $228,000. The average underwater amount is $57,000.
  • Approximately 2.1 million underwater borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $295,000.The average underwater amount is $77,000.
  • The bulk of home equity for mortgaged properties is concentrated at the high end of the housing market. For example, 94% of homes valued at greater than $200,000 have equity compared with 84% of homes valued at less than $200,000.

By Trey Garrison Housingwire


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Read More Tightening Inventories Likely To Push Home Prices Up


Inventories tightened 8.7% from January 2014 to January 2015

tightening inventoryHousing inventory continues to tighten in markets across the country – a 2015 trend identified by Chief Economist Jonathan Smoke in its housing inventory data report for January.

Nationwide total listings declined by 6.7% month over month and about 8.7% year over year.

“January’s inventory data suggest a continuation of the tightening trend we identified last month in the December data, and with a shortage of inventory typically comes increased home prices,” Smoke said. “Half of the 200 markets tracks experienced year-over-year price increases of at least 6% in January.”

Despite a shortage of inventory nationally, data on the 200 largest markets found a handful of housing markets categorized as healthy and growing.

These markets include: New York-Newark-Jersey City, NY-NJ-PA,;Tampa-St. Petersburg-Clearwater, Florida; Jacksonville, Florida, and Pittsburg, Pennsylvania.

“These four markets are bucking the trend, showing notable increases year over year in total listing counts and median list prices as well as clear declines in median inventory age,” Smoke said. “We will likely see the most sales growth in these markets in the coming months.”

Key monthly indicators for the national housing market include:

  • Median list price – $211,000 (Up 8.8% year over year)
  • Total listing count – 1,591,853 (Down 8.7% year over year)
  • Median age of inventory – 103 Days (Down 4.6% year over year)

By Trey Garrison

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