Thursday, November 2, 2017

GOP tax plan would shrink mortgage interest benefit, slash corporate tax rate

GOP tax plan would shrink mortgage interest benefit, slash corporate tax rate

Play Video 2:34
What's in the House GOP tax plan?
Embed
Share
House Republican leaders on Thursday, Nov. 2 proposed legislation that would overhaul the U.S. tax code. Here's what you need to know about it. (Monica Akhtar/The Washington Post)
House Republican leaders on Thursday proposed legislation that would overhaul the U.S. tax code, slash corporate and individual income tax rates and jettison numerous tax breaks Americans and businesses have used for years to limit their tax bills.
The release of the proposal accelerates a frantic political effort that could impact almost every American household and business. In a number of cases, the tax plan cuts back on tax benefits for families and individuals while expanding tax benefits for companies.
The Tax Cuts and Jobs Act would lower the corporate tax rate from 35 percent to 20 percent and collapse the seven tax brackets paid by families and individuals down to four. It would create giant new benefits for the wealthy by cutting business taxes, eliminating the estate tax, and ending the alternative minimum tax.
The legislation would cut in half the popular mortgage interest deduction used by millions of American homeowners, changing the deduction’s rules for new mortgages. Presently, Americans can deduct interest payments made on their first $1 million worth of home loans. Under the bill, for new mortgages, they would only be able to deduct interest payments made on their first $500,000 worth of home loans.
This change could have a particularly big impact on high-cost areas, such as San Francisco, New York, Boston, and the Washington D.C. area, and housing groups and lawmakers will likely try to defeat it. The bill would allow people to deduct their local property taxes from their taxable income, though this benefit would be capped at $10,000.
Play Video 1:55
10 tax reform promises Trump has made
Embed
Share
A look at what President Trump has promised Americans as it relates to his tax reform plan. (Joyce Koh/The Washington Post)
The bill would nearly double the amount of money not subject to federal income tax, a tax break known as the “standard deduction.” Under the plan, that deduction would rise from $12,700 per family to $24,000. But this benefit would be partially offset by the personal exemption many Americans can claim, which can be large for families with multiple children.
The bill’s true impact on the middle class will be difficult to immediately measure. The bill would create a new “Family Credit” and expand the child tax credit used by working families. The child tax credit would grow from $1,000 per child to $1,600 for each child.
Families would also no longer be able to deduct their state income taxes from their federal taxable income, another change that would have a particular impact on places like New Jersey and New York, where state taxes are higher than in other areas. Taxpayers will be able to deduct their property taxes up to $10,000.
Americans would no longer be able to deduct their medical expenses or property and casualty losses, according to a document outlining the plan.
The legislative fight over the tax bill has become the Trump administration’s biggest political goal, after failed attempts to repeal the Affordable Care Act. Trump wants the legislation to pass the House and the Senate by the end of the year, though they must resolve numerous differences.
The bill would add $1.5 trillion to the debt over 10 years, but Republicans believe the changes would trigger a surge in economic growth, higher wages, and job creation.
Other changes in the bill would be far reaching. It would, for example, make changes to college savings programs and have new requirements for tax-exempt organizations like churches and charities.
The measure now moves into a contentious phase as Republican lawmakers look to make their preferred changes to the bill while nearly all Democrats work to block it, all while an army of lobbyists lean on Congress in a bid to protect their preferred deductions.
Robert Bobby Darvish Platinum Lending Solutions Orange County

Tuesday, October 3, 2017

Homebuyers rush to riskier mortgages as home prices heat up

Homebuyers rush to riskier mortgages as home prices heat up

  • The number of adjustable-rate mortgage originations jumped just over 40 percent from the first quarter of this year to the second.
  • Mortgage rates are still very low, historically speaking, but they have been inching up.
  • Buyers this year are struggling with affordability and opting for a lower-rate product.
An aerial view of a retirement community in Central Florida
Carlo Allegri | Reuters
An aerial view of a retirement community in Central Florida
Home prices are heating up yet again, and that is sending more potential buyers looking for ways to afford a monthly mortgage payment.
The number of adjustable-rate mortgage originations jumped just over 40 percent from the first quarter of this year to the second, according to analysis by Inside Mortgage Finance. ARMs offer lower interest rates than fixed-rate loans, and today's ARMs usually have a fixed period of at least five years. That means the rate can change after five years. Still ARMs are considered riskier than the classic 30-year fixed mortgage.
The average contract interest rate on 30-year-fixed mortgages with conforming balances was 4.11 percent last week, according to the Mortgage Bankers Association. Compare that with the rate on a five-year ARM, which was 3.38 percent. The rate on an adjustable-rate loan, by definition, will change after the fixed period, moving higher or lower, depending on the broader market rate.
ARM demand usually rises from the first quarter to the second quarter, because spring is the busiest season for homebuying, and it's when families dominate the market, searching for bigger, higher-priced homes. Still, the jump in ARMs in the spring of 2016 was 15 percent compared with this year's 40 percent jump. This makes the case that buyers this year are struggling with affordability and opting for a lower-rate product.
While mortgage rates remain very low, historically speaking, they have been inching up. The vast majority of homebuyers favored the safety of the 30-year-fixed rate mortgage since the housing crash, but weakening affordability is now changing that.
Home prices have been rising steadily for the past three years, and while it looked like the gains were flattening recently, they appear to be heating up again. Prices nationally jumped 6.9 percent in August compared with August of 2016, the biggest gain in three years. The annual gain in July was 6.7 percent, according to CoreLogic.
"One thing that's helped to fuel demand, and certainly home price growth, as much as the lean inventory of for-sale homes is that mortgage rates have really cooperated," said Frank Nothaft, chief economist at CoreLogic.
Home prices have been rising far faster than inflation, but Nothaft predicts the gains will actually ease next year, if, as he expects, mortgage rates rise. That will be the tipping point, he said, although others argue that tight supply of homes for sale, especially on the low end, will keep prices lofty despite higher mortgage rates.
Already, close to half of the nation's top 50 housing markets are overvalued, in relation to income and employment growth.
"Prices are being driven up by very tight market conditions," noted Matthew Pointon, property economist at Capital Economics. "On a per capita basis, the number of existing homes for sale is at a record low, and buyers are therefore having to up their offers to secure a home."
Pointon said home prices should actually be rising by more than 10 percent, given the tight supply, but tight mortgage lending standards are restricting that growth.
"Cautious appraisals are preventing desperate buyers from bidding too much for a home, as are strict debt-to-income ratios," he said.
While ARM loans are often blamed for the epic housing crash in the late 2000s, the current ARMs are nothing like those of the past. Products like negative amortization loans, which offered very low rates up front but then tacked that initial savings amount onto the loan itself, no longer exist.
Loans must now be fully documented and underwritten to the full length of the loan in order to make sure borrowers can pay even if the rate goes up. Lenders must also make it very clear to borrowers that their rate is only fixed for a certain term, and that it will likely go up after that term, given the current trajectory of rates overall. That, again, was not the case in the past.

Wednesday, August 2, 2017

Mortgage applications slide 2.8%, even as interest rates stay low


  • Total mortgage application volume fell 2.8 percent on a seasonally adjusted basis last week compared with the previous week, according to the Mortgage Bankers Association.
  • Mortgage applications to refinance a home loan fell 4 percent for the week, seasonally adjusted, and were 41 percent lower than the same week one year ago.
  • Mortgage applications to purchase a home, which are far less sensitive to weekly rate moves, fell 2 percent for the week.















Both homeowners and homebuyers are taking a step back from the mortgage market, as stagnant interest rates give them no particular reason to act quickly.
Total mortgage application volume fell 2.8 percent on a seasonally adjusted basis last week compared with the previous week, according to the Mortgage Bankers Association. Volume was 22 percent lower compared with the same week one year ago, due to much lower volume in refinances.
Mortgage applications to refinance a home loan fell 4 percent for the week, seasonally adjusted, and were 41 percent lower than the same week one year ago, when interest rates were lower. Refinance volume is particularly sensitive to weekly rate moves, but rates have been so low for so long that there is a shrinking pool of borrowers who might benefit from a refinance. Rates are currently hovering around the lowest level in five weeks.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) remained unchanged at 4.17 percent, with points decreasing to 0.36 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
"It was an up and down time for rates last week in response to mixed economic news coupled with the Fed's FOMC statement," said Joel Kan, MBA's associate vice president of industry surveys and forecasting. "The statement outlined a mostly healthy outlook, with a slight concern over inflation and the news that balance sheet reduction could begin 'relatively soon.'"
Mortgage applications to purchase a home, which are far less sensitive to weekly rate moves, fell 2 percent for the week. That is the second straight decline and the lowest level since last March. Purchase applications were 9 percent higher than the same week one year ago.
Homebuyers today are less concerned with interest rates and more concerned with overheating home prices and a severe shortage of houses for sale.
Mortgage rates moved even lower to start this week due to some weak economic data.
"GM posted a sharp decline in auto sales," noted Matthew Graham, chief operating officer of Mortgage News Daily. "This builds a case for economic weakness, leading more traders to seek safer returns in the bond market. Excess demand for bonds results in lower interest rates."
A bigger move could come at the end of this week when the Labor Department releases the monthly employment report.
The refinance share of mortgage activity decreased to 45.5 percent of total applications from 46.0 percent the previous week. The adjustable-rate mortgage share of activity decreased to 6.6 percent of total applications.
The Federal Housing Administration share of total applications increased to 10.3 percent from 10.2 percent the week prior. The Department of Veterans Affairs share of total applications decreased to 10.1 percent from 10.5 percent the week prior. The Department of Agriculture share of total applications remained unchanged at 0.8 percent from the week prior.

Robert Bobby Darvish of Platinum Lending Solutions

Thursday, July 27, 2017

Mortgage rates slide lower as Fed considers unwinding its balance sheet

 

(Paul J. Richards/AFP/Getty Images)
Mortgage rates fell for the second week in a row ahead of the Federal Reserve’s July meeting.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average slipped to 3.92 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.96 percent a week ago and 3.48 percent a year ago.
The 15-year fixed-rate average dropped to 3.2 percent with an average 0.5 point. It was 3.23 percent a week ago and 2.78 percent a year ago. The five-year adjustable rate average fell to 3.18 percent with an average 0.5 point. It was 3.21 percent a week ago and 2.78 percent a year ago.
The Federal Reserve left its benchmark rate unchanged after its meeting this week but signaled that it would start rolling back its balance sheet “relatively soon.” The announcement came too late in the week to factor into Freddie Mac’s survey. The government-backed mortgage-backer aggregates current rates weekly from 125 lenders from across the country to come up with national average mortgage rates.
Any shrinking of the central bank’s $4.5 trillion portfolio is likely going to have an impact on mortgage rates. The Fed has said it would reduce its holdings gradually, but too quick of a sell-off could send rates skyrocketing. Back in 2013 when then-Fed chairman Ben Bernanke testified before Congress about tapering the bond-buying program, the “taper tantrum” fueled a rapid rise in rates.
Michael Fratantoni, Mortgage Bankers Association chief economist, expects the Fed to announce in September that it will begin unwinding its balance sheet in October. He also predicts another rate increase later this year.
“The job market is tight,” Fratantoni said. “Many employers are finding it increasingly challenging to fill open positions. And yet wage growth and price inflation remain low. We agree with the Fed’s expectation that inflation will increase later this year and into next, and this will prompt further increases in the Fed’s short-term target, with the next hike most likely coming in December.”
Despite the news out of the Fed, most of the experts surveyed by Bankrate.com, which puts out a weekly mortgage rate trend index, say rates will remain relatively stable in the coming week.
“Even with the dial back on their balance sheet beginning ‘relatively soon,’ the Fed’s concerns about low inflation will keep a lid on mortgage rates for now,” said Greg McBride, chief financial analyst at Bankrate.com.
Meanwhile, mortgage applications were flat last week, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — increased 0.4 percent. The refinance index rose 3 percent, while the purchase index fell 2 percent.
The refinance share of mortgage activity accounted for 46 percent of all applications.

Wednesday, July 5, 2017

Next up for markets: Fed could set a hawkish tone

Next up for markets: Fed could set a hawkish tone

  • The Fed is likely to reveal some detail about its plan to begin the unwind of its $4.5 trillion balance sheet when it releases minutes from its last meeting at 2 p.m.
  • If the Fed seems confident that inflation will move higher, or shows it wants to tighten because of financial conditions, the market may take its message as "hawkish."
  • A hawkish Fed, appearing ready to raise interest rates, could trigger a sell-off in stocks and in Treasurys, which would send bond yields higher.


















Federal Reserve Board Chairwoman Janet Yellen
Joshua Roberts | Reuters
Federal Reserve Board Chairwoman Janet Yellen
The Federal Reserve could have an impact on trading when it releases the minutes from its last meeting Wednesday afternoon, particularly if it appears confident that it could raise interest rates again this year.
The Fed is also likely to provide some insight into its plan to unwind its $4.5 trillion balance sheet, which many market pros expect to begin in September. The Fed intends to taper back on its practice of replacing Treasurys and mortgages, as the issues it holds mature. Those securities were first purchased as part of the extraordinary easing it used to fight the financial crisis.
But traders were also focused on the fact that Fed speakers and even the European Central Bank have been sending somewhat hawkish messages recently, and the minutes could lean toward those comments.
"It almost seems like a concerted message from people at the Fed about financial conditions being very easy, perhaps too easy," said Stephen Stanley, chief economist at Amherst Pierpont. "It would be interesting to see if the committee discussed that and what the rhetoric was. …[Janet] Yellen, [Stanley] Fischer, [William] Dudley, each of them talked about financial conditions being easy one way or the other."
Stanley said Dudley, the New York Fed president, has made it clear if the Fed raises rates, and the markets react, it could slow its hiking. But if markets do not react at all, the Fed could increase its activity, he said.
The Fed minutes, to be released at 2 p.m. ET, are the first in a series of events that could reveal more about Fed policy for the second half of the year. On Friday, the June employment report will be released, and markets are watching the wages data to see if there are any early signs of returning inflation. Later Friday morning, the Fed will release its semi-annual monetary policy report at 11 a.m. ET, five days ahead of Fed chair Yellen's economic testimony before Congress. Then, the Federal Open Market Committee meets again on July 25 and 26, where it is not expected to take action on interest rates but could reveal more about its intentions.
The markets have doubted the Fed will hike rates for a third time this year, giving just about 50 percent odds for a September rate rise. Analysts are watching the minutes to see if the Fed signals that the recent dip in inflation is temporary and that it is on track to move ahead on interest rates unless the economy softens.
Bond market pros are also looking to see if the Fed will reveal any clues about when it will start tapering back its purchases of Treasury and mortgage securities.
The minutes are from the June 14 meeting when the FOMC raised rates for a second time this year and revealed details on how it intends to gradually begin paring back its balance sheet.
"Right now, many market participants don't expect a [rate hike] in September," said Kate Warne, investment strategist at Edward Jones. "Investors are thinking they won't move unless they get stronger inflation." She said the Fed could indicate it is willing to discount the downward move in inflation as short-term.
"If the minutes are more hawkish than expected, we would see investors surprised by the minutes. I don't think that's likely to be the case. Stocks would probably react negatively and interest rates would continue to rise," Warne said.
Stocks started out the month of July Monday on an upswing that sent the Dow to new highs, but selling in technology stocks pulled down the Nasdaq. On Wednesday, stocks opened slightly higher, after the July 4 holiday Tuesday. Treasury yields were also higher, and the dollar was firmer, ahead of the release of Fed minutes.
The yield on the 2-year note, the most sensitive to Fed hiking, was at 1.41 percent, after touching 1.426 percent Monday, its highest level since 2009.
"I think the expectations are for the Fed to confirm their tapering intentions," said Ian Lyngen, head of U.S. rates strategy at BMO.
"I think a September taper has become very consensus," said Lyngen. "If you see a uniform view reflected within the minutes, I think it's going to be bearish in the Treasury market because it suggests there will be follow-through with the tapering and hiking. If there's a divergence, it would be bullish."
Treasury yields move opposite prices, so a hawkish view would send rates higher.
"I don't really think they're going to change the overall tone or direction of the Treasury market," said Lyngen, adding he would expect the most action in the 5-year note as a reflection of future Fed policy moves. The 5-year yield was at 1.93 percent Wednesday. The 10-year was at 2.34 percent.
"I certainly don't think we'll get a rate hike in July, but I do think there's a chance we'll get the balance sheet announcement in July," said Lyngen. "You could make a case for September. My thought is they want to keep the balance sheet discussion separate as much as possible."
The Fed has said it would pause in its rate hiking when it begins action on its balance sheet. The balance sheet reduction is expected to put slight upward pressure on interest rates.
The Fed said it would cap its tapering back of purchases of Treasurys and mortgages at $10 billion a month, before increasing the cap at three-month intervals. The Fed is not adding to its balance sheet any longer, but it does replace securities it holds as they mature. It is that process that will be "tapered" back.

WATCH: On rates, I'm the most dovish on the committee right now: Fed's Bullard

Thursday, June 15, 2017

Fed Raises Key Interest Rate For 4th Time Since 2015

Fed Raises Key Interest Rate For 4th Time Since 2015


Federal Reserve Chair Janet Yellen speaks to reporters in Washington, D.C., on Wednesday after the Fed announced it would increase interest rates by a quarter-point.
Susan Walsh/AP 
 
Updated at 3:55 p.m. ET.
Federal Reserve policymakers have raised their target for the benchmark federal funds interest rate by a quarter-point, to a range of 1 percent to 1.25 percent.
Despite the increase — the fourth since December 2015 — interest rates remain near historic lows, but the move will mean higher borrowing costs for consumers. The Fed previously raised rates in March, and on Wednesday, it signaled plans for one more rate increase this year.
In a statement Wednesday, the policymakers said that "the labor market has continued to strengthen and that economic activity has been rising moderately so far this year."
The economy grew at a rate of 1.2 percent in the first quarter of this year, about half as fast as it did in the final three months of 2016. Unemployment dipped to 4.3 percent in May, a 16-year low.
"Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined," the Fed statement said. "Household spending has picked up in recent months, and business fixed investment has continued to expand."
Greg McBride, an analyst with consumer financial site Bankrate.com, tells NPR's Yuki Noguchi that, taken together, the Fed's moves have caused home equity and car loan rates to increase about 1 percentage point over the last two years.
"The combination of rising debt burdens and rising interest rates is starting to strain some households, and we're seeing delinquencies pick up from recent lows," McBride says.
In the wake of the financial crisis, the central bank added Treasury securities and mortgage-backed securities to its balance sheet. Now it's making plans to reduce those holdings, which total more than $4 trillion.
The Fed said it "currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated."
As Reuters reports:
"The central bank said it would gradually ramp up the pace of its balance sheet reduction and anticipates the plan would feature halting reinvestments of ever-larger amounts of maturing securities.
"The Fed said the initial cap for Treasuries would be set at $6 billion per month initially and increase by $6 billion increments every three months over a 12-month period until it reached $30 billion per month in reductions to its holdings.
"For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, increasing by $4 billion at quarterly intervals over a year until it reached $20 billion per month."

Robert Bobby Darvish Platinum Lending Solutions Newport Beach CA

Friday, May 12, 2017

Mortgage rates edge higher but remain within a narrow band

Mortgage rates edge higher but remain within a narrow band

 
Mortgage rates wandered higher again this week after a brief slip but remain within a narrow band.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average ticked up to 4.05 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.02 percent a week ago and 3.57 percent a year ago. The 30-year average has hovered between 4.02 percent and 4.05 percent the past three weeks.
“Mixed economic reports over the last few weeks have anchored the 30-year mortgage rate around the 4 percent mark,” Sean Becketti, Freddie Mac chief economist, said in a statement.
The 15-year fixed-rate average rose to 3.29 percent with an average 0.5 point. It was 3.27 percent a week ago and 2.81 percent a year ago. The five-year adjustable rate average increased to 3.14 percent with an average 0.5 point. It was 3.13 percent a week ago and 2.78 percent a year ago.
With the yield on the 10-year Treasury climbing to 2.42 percent Tuesday, its highest point since March 30, home loan rates — which tend to follow the movement of long-term bonds — were slowing moving higher. Then came the unexpected firing of FBI Director James B. Comey. Because this type of news makes investors anxious and causes them to seek safety in bonds, the yield on the 10-year U.S. bond slid to 2.41 percent Wednesday.
The retreat in long-term bond yields came too late in the week to be factored into Freddie Mac’s survey. The government-backed mortgage-backer aggregates rates weekly from 125 lenders from across the country to come up with a national home loan rate average.
Experts are mixed on where mortgage rates are headed. Rates had fallen in 6 of the past 7 weeks. Bankrate.com, which puts out a weekly mortgage rate trend index, found that about half of the experts it surveyed say rates will go up and another half say they will remain relatively stable in the coming week. Less than 10 percent say they will fall. Greg McBride, chief financial analyst for Bankrate.com, is one who expects rates to rise.
“The job market is tightening, inflation is moving up, and the Fed is poised to raise rates in June — all of which is providing some lift to mortgage rates,” McBride said.
Meanwhile, mortgage applications picked up last week, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — increased 2.4 percent. The refinance index rose 3 percent, while the purchase index grew 2 percent to its highest level since October 2015.
The refinance share of mortgage activity accounted for 41.9 percent of all applications.

Robert Bobby Darvish platinum Lending Solutions of Orange County