A weekend topic starting with the Detroit Free Press in Michigan. “A new 0% down mortgage is certainly an attention grabber for the Pontiac-based, mega mortgage lender, United Wholesale Mortgage. Under the 0% Down Purchase plan, qualified first-time borrowers and others can receive up to $15,000 or up to 3% of the purchase price of a home, whatever is less, for a down payment assistance loan. It’s a second loan, in addition to the mortgage, but it has a 0% rate and no monthly payment. No doubt, some homebuyers today are psychologically keeping the possibility of refinancing in mind. They’re not waiting to buy until rates come down. Instead, they’re buying the house they want now with the expectation that they might refinance the loan and lower their mortgage payments in the future at some point. ‘It’s almost like you’re going to marry the house but date the rate,’ said Alex Elezaj, chief strategy officer for UWM in Pontiac.”
Go Banking Rates. “Ask the average would-be homebuyer what’s holding them back, and they’ll likely tell you, ‘I don’t have the money for a down payment and closing costs.’ Several government programs have tried to solve this problem, many successfully. The FHA mortgage program allows a 3.5% down payment for homebuyers with credit scores as low as 580. More recently, Fannie Mae launched its HomeReady program, and Freddie Mac its parallel Home Possible program, each allowing a down payment as low as 3%. That puts homeownership in reach for more buyers — which spurs demand and drives up home prices further. Other programs offer 0% down payment loans for certain borrowers (such as VA loans for veterans or Good Neighbor Next Door assistance for police officers and teachers) or in specific areas (like USDA loans for rural properties).”
“People with lower incomes tend to have lower credit scores. And lower credit scores can make it nearly impossible to get approved for a mortgage. That largely drove the success of the FHA loan program: It allowed borrowers with weak credit to buy with a small down payment. But these borrowers are more likely to default, which is why FHA loans now require borrowers to pay the mortgage insurance premium for the entire life of the loan, not just until they pay it down below 80% of the property value. In other words, performing borrowers subsidize these loans by paying for default insurance long after they no longer pose any risk themselves. Somebody has to pay for the higher risk associated with these mortgage loans, but it reduces affordability for everyone.”
From Newsweek. “‘USDA-guaranteed mortgages maintained their market share last week because they’re a good deal,’ Holden Lewis, a home and mortgage expert at NerdWallet, told Newsweek. ‘They don’t require a down payment, so they’re suited to buyers who lack money for a down payment. And the interest rates are competitive. There’s strong demand for housing in rural areas, and eligible borrowers are interested in these loans.’”
Chatham Journal Newspaper in North Carolina. “I had a chance to sit down with local real estate agent Eric Andrews. Andrews explains that affordable housing, sometimes referred to as workforce housing, is scarce. In Chatham County, the average family income is relatively high, around $62,000, which translates to an affordable home price range of about $200,000 to $250,000. However, the average home price in the county has soared to over $500,000, far exceeding what many families can afford.”
“The rental market also reflects this trend. The average rent in Chatham County is approximately $1,400, but with property values rising, landlords are increasingly inclined to sell their properties rather than rent them. This further exacerbates the shortage of affordable housing. ‘If a landlord can sell a property purchased for $200,000 ten years ago for $500,000 today, the financial incentive to keep renting diminishes,’ Andrews explains.”
The Reno Gazette Journal in Nevada. “For many longtime residents, the steep jump in apartment rent in the last decade is a sobering reality. Since 2014, average rent in the area doubled to a record high $1,680 by the second quarter of 2022, according to real estate appraisal and consulting firm Johnson Perkins Griffin. Prior to that, rents in Reno-Sparks hovered around the $800 mark from 2006 to 2015. The higher vacancies seen in the older or smaller apartments, for example, can reveal what’s going on behind the scenes between the different properties — especially with the large number of new units that have entered the market in recent years.”
“‘We have an oversupply right now of new Class A (apartments),’ said Floyd Rowley, founding broker of Rowley Real Estate Advisors. ‘So those are the guys cutting the deals and they are essentially sucking up some tenants from the (Class) Bs and the Bs are doing the same thing to the Cs.’”
“Greg Peek, president of ERGS Properties, sold his rental business in Reno and developed the 220-unit apartment. Peek wasn’t looking to sell at the time. The unsolicited offer from an out-of-state investor, however, was too good to refuse, he said. Peek still remembers what the new ownership did. ‘They immediately raised rents,’ Peek said. The new ownership looked at Peek’s former property as a ‘value add,’ which is when an investor comes in to take over an existing property to make improvements and raise its potential to earn even more revenue.”
“The arrival of outside institutional investors is one of the biggest changes in Reno that Peek has noticed. When Peek drives around town and sees all the new projects being built, he wonders how many of those are owned by local developers. ‘They may be using local builders but, ultimately, the ownership is out of town,’ Peek said. ‘It seems to me that those institutional investors are going to try to do everything they can to make as much money out of these properties as possible.’”
The Pittsburgh Post Gazette. “Gus Faucher, a PNC economist, recently wrote in the Post-Gazette that since mid-2020, when the recovery from the COVID recession began, overall retail prices in the U.S. have increased a total of 22%. And while the rate of inflation has recently slowed, Faucher added that many consumers are disappointed that prices haven’t fallen back to pre-pandemic levels. That isn’t going to happen, he said, mainly because the deflation required would likely wreck the economy. Deflation may be impossible — but the question is why. This points to the entrenched interests of the same bankers and bureaucrats who caused the post-COVID inflationary bubble in the first place. What of the millions of Americans who saw their prospects for establishing home equity — the foundation of middle-class wealth in America — wrecked after being effectively priced out of the housing market? If deflation is impossible, whose interests are we protecting — and why?”
“The immediate response of American financial authorities after the COVID lockdowns was to create massive amounts of money from nothing, and begin handing it out. In the second and third quarters of 2020 alone, the Federal Reserve’s balance sheet increased by 66%, or nearly $3 trillion. Over the same period, annualized federal spending jumped from $4.9 trillion to just under $8 trillion, an increase of 64%. The lockdowns themselves may have been one of the most ill-advised policy responses in U.S. history, but the efforts on the part of the fiscal and monetary authorities weren’t much better. The predictable result, given an economy operating on only two or three cylinders, was the massive wave of inflation now (mostly) in our rear-view mirror.”
“If we’re not operating the economy and the financial system for the young families who are the future of America, whom are we operating it for? Shouldn’t an economy serve consumers first, with the benefits of rising productivity flowing directly into lower prices? Or have we come so far down the road of asset inflation — in order to protect Boomer retirements — that there’s no going back?”
From Newsweek. “Florida reported the third-highest number of foreclosure filings in the country between January and March, according to a recent report from property and real-estate data research firm ATTOM. Houston, Texas, saw the biggest increase among the 15 metropolitan areas with the most filings in the first quarter of 2024, up 37 percent compared to a year earlier. Three Florida metros—Orlando, Tampa and Miami—followed. ‘Upon analyzing various data points and key metrics, no definitive trend emerges to explain the foreclosure increases in Orlando and Tampa,’ Rob Barber, ATTOM CEO, told Newsweek.”
“Barber explained some of the foreclosures with higher property taxes in some areas. ‘Average residential taxes rose more than 5 percent from 2022 to 2023 in the Tampa and Orlando MSAs. But those increases added less than $100 to monthly expenses, so that is probably not a major factor,’ he said. ‘The same would be true for homeowner insurance increases, which aren’t going to add a huge amount to monthly expenses. So, amid all that, I suspect these trends may be due to nothing more than lenders with backlogs that are now being filed in court, leading to an increase in activity,’ Barber added.”
The Garden City News in New York. “Those major metro areas with populations of 200,000 or more that had the largest numbers of foreclosure starts in the first quarter including NYC, NY, (with 4,404 starts), Houston, Texas, (with 2,977 starts), Chicago, Illinois(2,867 starts), Los Angeles, Ca.(2398 foreclosure starts), and Miami, Fl.(2319 foreclosure starts). The highest foreclosure rates were in Delaware, New Jersey, and South Carolina. From my experience in dealing with foreclosures, sometimes it is a long road to remedying and rectifying your mortgage issues. Luckily in NYS, I have seen some homeowners stay in pre-foreclosure for up to 7 years; sometimes saving so much money, that they are almost able to pay cash for another residence, depending on where they live.”
The Post Independent. “Freddie Mac (Federal Home Loan Mortgage Corporation) the cousin of Fannie Mae, has come out with a proposal to buy second mortgages funded behind first mortgage home loans held by the government sponsored enterprise. And that’s a lot of loans. Freddie buys billions of dollars of mortgages every month. If the proposal is approved, homeowners will be able to turn their equity into cash without selling their home or refinancing the existing first, which most likely has a low rate secured in the post-financial crisis, post pandemic period of preternaturally low mortgage rates.”
“This is great news for a lot of people who currently have big equity numbers. They will be able to pull out of their home whatever flash cash they can qualify for, and keep that three and a half percent, thirty year first mortgage in place. And it will benefit others as well: the proposition should be titled ‘The Mortgage Brokers Full Employment and Income Enhancement Initiative.’ Loan hacks are going to love it. In fact, it won’t be all that bad for a couple of NBA team owners, Matt Ishbia and Dan Gilbert, who control United Wholesale Mortgage, and Rocket Mortgage respectively, the two largest producers of home loans in the country. They’ll have more money to spend on buying basketball players for the Phoenix Suns and the Cleveland Cavaliers. For the rest of us, it’s a very bad idea.”
“In this column we’ve constantly commented on the propensity of the movers of money, banks, mortgage companies and other lenders, to repeat the same mistakes, ad nauseum, and expect different results. This idea is a prize-winning example of that insanity. So, let’s all take a deep breath and note that Freddie’s concept is being floated right at the time that, in most venues, the price of homes is at an all time high. Inevitably, this picture comes to mind, ‘Martha, hook up the boat to the Range Rover. Thank heaven we got that second lien to buy this stuff so we could get out of town before the foreclosure sale.’”
“Without question, at some point, there will be a boatload of homes that will be below water, where more is owed than their market value. There will be defaults and foreclosures with an unavoidable ripple effect on the economy. How serious that might be is unknown; but why trigger it?”
The Calgary Herald in Canada. “Ryan Fehr had grown tired of renting. Fehr, 40 and a single dad, had just broken up with his girlfriend. He found there was no limit on how much landlords could raise the rent in Calgary, and he yearned to put down some roots in a house, especially for his then-two-year-old son, whom he had with his previous partner. Property values started ballooning, in some cases exceeding $500,000. “When you’re a single guy trying to work, it’s not feasible, man, you’ll just be house-poor.” Fehr stopped scanning the apps, knowing he’d have to shell out nearly half or more of his income to afford an average house in Calgary. ‘I’m not out buying extravagant things and being crazy with my money. I have a good job. I have a career.’”
“The price of a single detached home in Calgary has more than tripled since 2000, while a townhouse has nearly quintupled in the same period, according to the Calgary Real Estate Board (CREA) . More than half of Albertans in the same Ipsos poll said they have stopped trying to buy a home. The transformation of homeownership and what it means through several economic and public policies, experts say, has fuelled a crisis that has put housing out of reach for many Albertans. ‘For a long time, the idea of owning a home was seen as a means for housing stability and security of tenure,’ said Andy Yan, director of the City Program at Simon Fraser University. ‘Then it just suddenly became like a Tesla stock.’”
“Various policies that came along since the 1980s , such as reducing the minimum down payment to qualify for a mortgage, allowing withdrawals from tax-sheltered investments such as RRSPs for first home purchases, and offering tax exemptions for investors buying second properties to rent out, made homeownership attractive. The government also introduced financial products offered by banks that pooled a bundle of property loans and sold them to investors. These products, called mortgage-back securities, allowed investors to profit from the interest households paid on their mortgages. If homeowners were to default on their payments, investors would continue to receive their returns from the Canada Housing and Mortgage Corporation — a Canadian Crown corporation created in 1946 that administers several housing programs — which insured the mortgage.”
“‘The spending that would have been done on non-market housing shifted towards a subsidy for homeownership,’ Yan said. ‘It was subsidies in terms of mortgage insurance and assurances to the bank that people were able to pay their money back for these mortgages.’ Such products allowed banks to sell their risk to other investors and replenish their cash reserves, freeing up their capacity to lend to more households. Efforts to increase homeownership became more aggressive in the 2000s. A few years later, the government stretched amortization periods up to 40 years. Mortgage insurance fees were slashed, and CMHC was allowed to insure interest-only, no-downpayment mortgages, incentivizing banks to lend money to a greater number of people. As a result, even people with insecure jobs had access to mortgages, albeit at the cost of very high levels of debt.”
“House prices rose as demand climbed. ‘Those who could become homeowners, did, but then those who couldn’t, because of X-number of circumstances, were now locked out with none of the benefits,’ Yan said. ‘We have noticed that purchasers headquartered in Toronto, Vancouver, Montreal, etc., who don’t have any real estate holdings in Calgary are taking a keen interest in entering our market and we’re getting calls from these types of groups every week,’ said Mason Thompson, an analyst with Avison Young.”
“Jamil Thobani, a realtor in Calgary, said almost all properties he has sold were bought above their listing price, and nearly half of his clients are from outside the province. ‘I’m telling you, there is a sense of frustration,’ Thobani said. ‘It’s like, ‘Ah, we lost that one or we lost another one, we’re not going to find another place. Okay, my lease is coming up. I need to get out of this.’ Then they will maximize whatever they can and outbid the next person.’”
“This is why relying merely on increasing the supply of homes is misguided, said Policy Alternatives economist Ricardo Tranjan. He said the solution also involves providing more affordable and accessible housing to people who need it the most. ‘There is nothing we’re doing at the federal, provincial or municipal levels that will move us away from an asset-based economy,’ Tranjan said. ‘(Most of what) we’re doing is increasing supply, but how much of this supply will be at a reasonable price and be purchased by someone who is not a homeowner looking for an investment property?’”
The Globe and Mail. “Canada’s anti-money-laundering regime is like a pair of distressed jeans – the holes are there on purpose. That pointed analysis comes from Sanaa Ahmed, an assistant professor at the University of Calgary’s Faculty of Law. As one of this country’s leading experts on money laundering, she fearlessly scrutinizes the role of the state in Canada’s ascendence as an international haven for financial crime. Dr. Ahmed, who wrote an eye-opening chapter for a book entitled Dirty Money: Financial Crime in Canada, rejects the notion that illicit proceeds wash up on Canadian shores by accident. Indeed, she questions whether it is even reasonable to presume that Canada wants to combat money laundering given its chronic failure to keep its promises over the past 35 years.”
“If there is a lack of political will to combat financial crime, it is because the Canadian economy is dependent on dirty money. Dr. Ahmed dubs it ‘laundering as public policy.’ It’s a provocative statement, to be sure. But this is no tin-foil-hat conspiracy. The evidence shows that she is right. ‘When we talk about AML regulation, I like to analogize it with a pair of distressed jeans. We can no longer pretend that the holes are inadvertent or they just manifested overnight,’ Dr. Ahmed said in a recent interview. ‘They are part of the design of the jeans. The holes were always supposed to be part of it. And so, this pretense that, you know, this is something that’s just cropped up and maybe we need to batten down the hatches; I don’t think that’s a particularly productive way of looking at it.’”
“Canada has ostensibly been tightening its anti-money-laundering regulations since the late 1980s. And yet, as Dr. Ahmed points out, it is still profitable for banks and other businesses to run afoul of the law and for criminals to ‘snow-wash’ through provincially incorporated shell companies. Similarly, the ‘Vancouver model’ of laundering illicit proceeds through B.C. casinos remains a blight. An estimated $45-billion to $113-billion is laundered here each year, according to Criminal Intelligence Service Canada. Even so, Canada’s track record on enforcement is disconcerting.”
“Enforcement results, which include the number of investigations, charges, prosecutions, convictions and asset forfeitures, actually declined between 2010 and 2020, according to a 2023 report by the Department of Finance. If that wasn’t bad enough, the report offered this curious explanation: ‘The factors contributing to these results are complex and must be considered within Canada’s unique context.’ Undoubtedly. Only in Canada would it be acceptable for the national police to take a five-year break from investigating money laundering. That, of course, is exactly what happened when the RCMP shuttered its national proceeds of crime and commercial crime sections in 2012. No one in Ottawa said boo.”
“Part of the paradox, she reasons, is that money laundering buoys the Canadian economy through corporate profits and jobs. The state, in turn, benefits from that illegal activity through tax revenues and fees. Her argument makes a lot of sense. Not only are real estate and construction among Canada’s top drivers of economic growth, but our country is also reliant on external inflows including from immigration. Here’s an uncomfortable truth: All those activities are vulnerable to illicit financial flows.”
“A 2016 evaluation by the Financial Action Task Force, an intergovernmental body that sets standards to combat financial crime, concluded that Canada struggles to detect corruption and the laundering of money through real estate. It also found that cross-border movements of money are rarely analyzed by law enforcement in Canada. ‘Why would any government – let alone a cash-strapped government such as the Canadian government – worry about the origins of this money?’ Dr. Ahmed writes.”