Homes as ATMs It’s starting again

As home values rise, homeowners are gaining more equity on paper — and they’re taking it out in paper. Cash-out refinances jumped 68 percent in the second quarter from a year ago, according to Black Knight Financial Services. This is the highest volume of this type of refinance in five years.

“People realize that refinancing these funds is extremely inexpensive and that rates will eventually rise, so they’re capitalizing on the strength of home price appreciation,” said Ben Graboske, senior vice president at Black Knight Data & Analytics.

House and money

Mortgage holders have gained about $1 trillion in home equity collectively over the past year. On an individual basis, borrowers doing cash-out refinances are taking an average $65,000, which is comparable to what borrowers did in 2006, the height of the last housing boom. While the jump is significant, the volume is still nowhere near where it was back then. In fact, volume is still 80 percent below where it was at the peak in 2005.

That is not the only difference. Today’s refinancer is in a far more solid equity position in his or her home, compared with borrowers then, who used their homes like ATMs, pulling out every available dollar. Even after tapping equity, the average resulting loan-to-value ratio for today’s borrowers is 68 percent, meaning the borrower has only leveraged 68 percent of the home’s current value. That is the lowest level in a decade.

“That reflects real strength of price appreciation and consumer sentiment,” said Graboske.

The jump in cash-out refinances could be behind the strength in auto sales and home remodeling. The lack of homes for sale has caused many potential buyers to stay where they are, even though they have the equity to move up. In turn, they are using that equity to not only enhance their home but to add to its value.

Anecdotally, remodeling contractors have been swamped this year, with many putting off new projects for months just to keep up. Remodeling by owners is expected to grow about 10 percent next year, according to a new study by John Burns Real Estate Consulting. It could grow even more if interest rates rise more than expected.

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“This is because more homeowners will choose to stay in place and remodel rather than abandon their current low rate mortgage by moving,” according to researchers in the study.

Cash-out refinances were most popular in California, accounting for 30 percent of all volume, according to Black Knight. The next closest was Texas, accounting for 7 percent. These states have seen the most home value appreciation. Should home value appreciation slow or even flatten, those hearty loan-to-value ratios will shrink, but it is unlikely today’s highly cautious, litigation-leery lenders will allow borrowers to take out more cash than is prudent.

Mortgage applications surge 25% on regulation worry

Another roller-coaster interest rate ride, combined with anxiety over new mortgage regulations, caused borrowers to rush to their lenders last week.

Total mortgage application volume surged 25.5 percent on a seasonally adjusted basis for the week ending October 2nd compared to the previous week, according to the Mortgage Bankers Association (MBA).

An ad for mortgages at a Citibank branch in New York.

An ad for mortgages at a Citibank branch in New York.

Both applications to refinance and to purchase a home were almost equally juiced. Refinance applications rose 24 percent, seasonally adjusted, and purchase applications were up by 27 percent. Purchase applications, which are usually less rate-sensitive week-to-week, are now 49 percent higher than one year ago, an astonishing jump given that the latest reads on home sales show the market appears to be weakening. They are now at the highest level in five years.

“The number of applications for purchase and refinance mortgages soared last week due both to renewed rate volatility and as many applications were filed prior to the TILA-RESPA regulatory change,” said Lynn Fisher, the MBA’s vice president of research and economics.

The change is part of a move by federal regulators to further protect borrowers by forcing lenders to disclose all details of a loan at least three days prior to closing; it went into effect October 3rd.

The average loan size of applications in the weekly survey increased by 6.9 percent, driven by a 12.1 percent increase in the average size of refinances.

JPMorgan buys more mortgages from other lenders as market shrinks

JPMorgan Chase headquarters building

JPMorgan Chase, looking to stem falling revenue in its mortgage business as fewer Americans refinance, is increasingly buying loans from smaller lenders, a practice that competitors including Bank of America view as risky.

In the first half of 2015, the bank bought 62 percent of the $58 billion in home loans it added to its books, compared with 56 percent in 2014 and 37 percent in 2011.

While other big banks buy mortgages from other lenders, known as correspondents, JPMorgan has racked up the biggest increase among its peers in the proportion of loans it buys from others, according to data from trade publication Inside Mortgage Finance. JPMorgan is fighting for business in what has been a shrinking market.

According to the Mortgage Bankers Association, applications for U.S. home loans have fallen by about 25 percent since mid-January, when a temporary drop in rates spurred a small wave of refinancing. Since May 2013, when mortgage rates first started jumping amid fears the Federal Reserve would hike rates, application volume has fallen by more than 50 percent.

Fewer applications overall make it harder for JPMorgan to make as many loans directly to consumers in its bank branches. Still, JPMorgan’s willingness to buy loans from correspondent banks is a sign that banks are comfortable taking more risk in the mortgage market, nearly a decade after the housing bubble popped.

“As they gain more confidence about the environment, they go right back to the correspondent channel for more volume,” said banking analyst Charles Peabody of Portales Partners.

To be sure, Bank of America avoids the loans, because it doesn’t want to be exposed to bad decisions made by smaller banks that do the actual lending.

“There’s more risk in being that far away from the customer,” said D. Steve Boland, the Bank of America executive in charge of mortgage and auto lending. For example, a smaller lender could fail to verify a borrower’s income properly, and just sell the loan on to a bigger bank.

High degree of confidence

To minimize that risk, JPMorgan, like other banks, specifies exactly what correspondent lenders have to do to vet loans, and forces the smaller lenders to buy back loans that turn out to have fallen short of those requirements.

Greg Beliles, correspondent lending head at JPMorgan, wrote through a spokeswoman that the bank works with “experienced, well managed and high quality” lenders. Bank of America’s concerns may stem from its experience with Countrywide Financial, which Bank of America bought in 2008, the largest correspondent lender in the U.S. at the time.

Countrywide failed at least in part due to bad loans that it bought from correspondent banks and could not sell back to them. The Countrywide deal has been a huge millstone for Bank of America—the bank has paid some $70 billion in settlements and legal penalties linked to the financial crisis, much of which came from its acquisition of the lender.

Other lenders had trouble with correspondent loans during the crisis. Residential Capital, once the mortgage arm of Ally Financial, filed for bankruptcy in 2012, in part because of its exposure to correspondent lenders that were not able to make good on claims. Ally is the successor firm to GMAC, the car financing arm of General Motors.

No bundling

JPMorgan said it reviews every loan it buys in detail. That attention gives it a “very high degree of confidence in the loan quality we are purchasing,” JPMorgan’s Beliles wrote in his email.

He said JPMorgan keeps the bulk of mortgages it buys from other lenders on its balance sheet, rather than bundling them into bonds and selling them to investors. Banks like JPMorgan may be dialing up their risk taking a bit, but there is little evidence of a new bubble forming.

While a few small lenders are creeping back into products like subprime mortgages, bigger banks are by and large avoiding them. Delinquency rates on single family mortgages, which peaked at 11.26 percent in the first quarter of 2010, have declined fairly steadily ever since and stood at 5.77 percent at the end of the second quarter, according to data from the Federal Reserve Bank of St. Louis. In the last crisis, delinquency rates started rising in 2004, and by the third quarter of 2007, a year before Lehman Brothers failed, reached 2.76 percent, their highest level in 14 years. Correspondent loans can bolster a bank’s bottom line.

Eric Stoddard, the Wells Fargo executive who has overseen the bank’s business of buying mortgages from other lenders for almost 15 years, said it is cheaper to buy these loans than to make home loans in its branches.

The loans carry another advantage: the buying bank gains the right to collect monthly mortgage payments from the borrower, and receives a small monthly payment for its efforts. That right, known as a “mortgage servicing right,” can be a valuable asset, especially when rates are rising. One lender said banks who buy loans from him are taking less risk than they would be making their own loans because of their ability to force him to buy the loans back.

PERL, which has 200 employees and expects to make about $1.6 billion in home loans this year, sells about 60 percent of its loans to JPMorgan, according to founder and president Ken Perlmutter. “I think BofA’s a little foolish” not to buy loans, Perlmutter said. Bank of America, however, believes the risk isn’t worth taking. The bank, which serves one out of two U.S. households, doesn’t need to buy loans from other lenders if it has so many customers of its own.

“I’ve already got a relationship with the customer,” said Boland. “Our strategy is about capturing more of that relationship.”

Is this the end of HK’s stratospheric property price rises?

Residential buildings stand in the Choi Hung, front, and Kowloon Bay district of Hong Kong, China, on Tuesday, Aug. 25, 2015.

Hong Kong’s ever-climbing property prices have long made the city a global posterchild for unaffordable housing, but there are signs change may be afoot, if buyers would just believe it.

Hong Kong’s property prices have more than doubled since 2009, consistently ranking the city among the world’s most expensive property markets. But now, property prices are “quite vulnerable. It’s going up only because of a general consensus that it will go up,” Nicole Wong, an analyst at CLSA, said recently.

“In general, we are no longer in times of extremely tight supply,” she added, noting that the number of units under construction has risen sharply since 2011.

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She estimates 15,000 to 18,000 saleable units will be completed over the next couple years, a 40 percent increase on 2013-15. Wong expects developers’ pricing power will take a hit, especially as the primary — or new development — market’s premium over the secondary, or resale, market has shrunk from around 40 percent to 5 percent.

Developers have stepped up incentives to buyers, a September Deutsche Bank report noted, adding that secondary transactions were seeing lower average selling prices, sometimes at below-market levels.

That’s likely to be just the sort of news the city’s chief executive, CY Leung, wants to hear.

In March, he told the Credit Suisse Asian Investors Conference in Hong Kong: “We need to break the backbone of the housing problem,” and cited plans to add 480,000 units over the next 10 years. The city is planning to target developments in outlying areas, such as Kowloon East and East Lantau, as well as land reclamation projects between Hong Kong and Lantau islands.

The cost of housing in the special administrative region of China has been a source of deep discontent even before Britain handed over the city to the mainland in 1997.

The government, sensing creeping public outrage, resorted to draconian measures a couple years ago, including doubling the stamp duty, or property transaction tax, on many buyers, mainly non-permanent residents, to cool the market. It also raised down payment requirements, in some cases to 60 percent of the sales price.

“For many years, Hong Kong had a housing demand-supply imbalance,” Paul Louie, a property analyst at Barclays, said recently. “Since [Leung’s] term began, we’ve seen the government be proactive in increasing land and housing supply in the market.”

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Louie believes that based on the numbers, the supply-demand situation has reached equilibrium.

“In the minds of homebuyers, they still think there’s a shortage, but the numbers point to a different scenario,” he said. “Homebuyer psychology takes longer to reverse.”

Some expect a quick decline in prices. In a September 30 note, UBS forecast Hong Kong property prices would fall about 25-30 percent by the end of 2017, although that follows a 340 percent rise since 2003.

“This round of price reversals will be triggered by a deteriorating local economy,” Eva Lee, head of Hong Kong and China property research atUBS, said in emailed comments. “Price drops may come more gradually and over multiple years.”

One factor that may weigh is the currency, she said. Hong Kong’s dollaris pegged to the U.S. dollar, meaning its currency is strengthening even as most of its regional counterparts are tanking, making the special administrative region’s property more expensive for many potential buyers.

With the U.S. Federal Reserve widely expected to hike interest rates by the end of this year, that’s also likely to push up mortgage rates in Hong Kong, because the dollar peg means that monetary policy in the two countries is also linked.

To be sure, Hong Kong’s prices don’t show any signs of weakening just yet. The territory’s price index for July, the latest available, rose to 303.6, posting increases for 16 out of the previous 17 months.

Some don’t expect Hong Kong’s property will ever be anything but pricey.

Any price declines “might be just a short-lived respite as prices zigzag upwards,” said Alexander Karolik Shlaen, an economist and CEO of Panache Management, a luxury brands and real estate investment advisor.

He sees Hong Kong as a “super-tier” Chinese city. “Hong Kong is the most desired city for Chinese people,” he said, noting the mainland’s propensity for turning out millionaires and billionaires. “If just a few percent move to Hong Kong, it will drive the market for years to come.”

There’s some sign Chinese developers agree. In late September mainland-based Shimao Property beat local developers in a government land auction for a site in Kowloon Tong, the South China Morning Post reported. Shimao plans a luxury development on the site, the report said.

You Started a Bidding War. How Do You Pick the Best Offer?

Someone is very pleased to have some cash.


The housing market is on the rebound, home prices are rising, and, for the first time in nearly a decade, two or more offers at the same time is a common occurrence.

It’s a good problem to have if you’re a seller. But before you lean back in your chair and daydream of the piles of money you’ll be sleeping on, there’s one more thing to think about: Now that you started that bidding war, how, exactly, do you choose the best offer?

The best strategy is to play offers against one another and take the highest price, right?

Wrong! While money is a major consideration, real estate agents are counseling their clients to look at a variety of factors when entertaining multiple offers.

“People are prone to get excited when they have an offer they like,” said Andrew Sohnof Coldwell Banker in Evanston, IL. “But you have to look behind the cover of the book, so to speak. The price is on the front page. It’s the first thing people see, but you can’t judge the book by its cover.”

Contingencies, closing dates, and all-cash offers, oh my!

For instance, try looking for the most appealing (proposed) closing date and whether the bidders are willing to waive contingencies such as inspection, attorney review, and mortgage approval, said Stuart A. Schwartz of @properties, also in Evanston. By waiving their contingencies, buyers have fewer “outs” and a deal is more likely to sail through the process, he said.

And if one or more of the bidders asks for a contingency to keep the deal on hold until his or her property sells, that’s an easy buyer to eliminate from consideration, Schwartz said.

Sellers should also know how much earnest money each bidder is offering, Schwartz said. Earnest money isn’t a down payment, but it is money held by the real estate agent that provides “skin in the game” to guard against a buyer walking away from the deal at the last minute.

Also, while you might be dismissing a higher offer, remember that cash is still king.

“Whether or not it’s a cash deal would be a factor,” Schwartz said. “You’re not waiting on a loan [approval], and it may or may not be subject to appraisal.

“There’s no formula,” Schwartz added. “You sit down and go through the terms carefully and figure out what offer works best for you.”

Buyers should also examine a bidder’s financing––how stable it is and where it’s coming from, Sohn said.

“If you’ve got an offer that’s $5,000 more, but it’s from an out-of-state lender you’ve never heard of, those are shaky table legs,” Sohn said. “If you’ve got someone with a cash offer, with no contingencies, but the price is a little lower, you might be wiser to take a lower offer.”

All the offers are so similar—how do I choose?

If there are two or more offers that are roughly equivalent, a seller can respond to more than one buyer. But a seller should be transparent about the time frame and ask for what’s commonly called a “best and highest” offer. It can be tempting to keep that bidding war going, but remember—a war can be a turnoff for potential buyers.

“To negotiate in good faith, you shouldn’t sit on offers too long,” Schwartz said. “You could tell someone who made an offer on a Saturday morning that we’re not going to respond until Monday. But be upfront about the fact that it’s because you have showings over the weekend.”

Giving everyone a deadline narrows the focus and gives everyone the chance to strengthen their offer, Sohn said.

“Some people seem to think that real estate is like eBay: You can go with your offer of $800,000 from Buyer A, go to Buyer B and play it off like an auction,” he said. “There is nothing illegal about doing that, but it’s very frowned upon. It’s not considered ethical.

“If you give everyone an even playing field,” Sohn added, “that’s the best practice.”

Former Mariners Manager Lloyd McClendon Is Selling Indiana Townhome

Lloyd McClendon

Former Seattle Mariners manager Lloyd McClendon is unloading his large three-bedroom townhome in Chesterton, IN, located near his childhood home of Gary.

The Mariners hired the former Pittsburgh Pirates skipper to lead their team back to respectability. Fired after a disappointing 2015 season, the feisty manager lasted only two seasons in the Northwest.

McClendon’s open-layout home—listed for $324,500, with a recent price drop after five months on the market—offers “lots of natural light,” says listing agent Katie Phillips of McColly Real Estate. In the spacious great room, a wall of windows stretching from the floor to the vaulted ceiling brings in the sun and overlooks the natural wetlands behind the home.

Sunny great room

The cheery, sunny great room.

Step into the master suite, with a built-in entertainment center and en-suite bathroom, and you’ll never guess you’re in a townhome.

Townhome exterior

Outside the surprisingly-large townhome.

And while the home may look small from the outside, the exterior of the 3,183-square-foot residence is deceptive. “From the front, you don’t have any idea it opens up as beautifully as it does,” says Phillips.

Filmmaker Michael Moore’s Michigan Mansion on the Market for $5.2M

ISl67cirb405gr0000000000Michael Moore’s most recent vacation home just hit the market. For those of you who haven’t heard the name in a while, Michael Moore is most commonly known for his outspoken opinions and the filmmaking of Roger & Me, Bowling for Columbine and Fahrenheit 9/11.

Following the divorce of his wife, Kathleen Glynn, the ex-duo finally got through the legal proceedings and listed the property at $5.2 million. The vast size of this home gave it the name “Michigan Mansion.”

The glorious structure sits along the perimeter of the Torch Lake in northwestern Michigan. The body of this mansion encompasses 11,058-square-feet, and features rustic timber ceilings, a massive stone fireplace, a gym, a guest cottage and a dock.

Will the Housing Market Ever Return to Peak Prices?

For homeowners who bought at the top of the boom ten years ago, waiting to regain the equity they lost when home values crashed from 2006 to 2008 has been a tough slog.

Since so many markets were overpriced during the boom, is it really such a good thing for all of them to return to peak levels? California, Florida, Nevada and Arizona were just four states where markets soared at double digit rates, far above prices that families earning the local median incomes could afford.

Some of those markets are still out of whack today, as prices recover. One thing we learned during the bubble and bust is that real estate is not as risk-free as many once believed.

What does the recovery look like?

During the period when prices were really popping during the boom, 2003-2006, some 16 million families bought homes. Let’s assume for the sake of argument half of those buyers, say 10 million, bought homes at prices higher than they would pay today. Some 4 million defaulted on their mortgages and lost their homes to foreclosure or short sale.

Most of the six million remaining homeowners have paid their mortgages every month, lacking the equity to sell or refinance, and now they are reaping the rewards of their perseverance., which has been tracking 300 of the nation’s largest markets as they restore value, reports that 46 percent have now reached or exceeded the median price levels they reached at the very peak of the boom.

“With the strong sales and price appreciation this spring and summer, it’s just a matter of a few months before more than half of the top three hundred largest markets in the nation will reach or exceed their highest price peaks eight years ago, “said David Mele, president of

But not all are recovering fast

Markets that are still falling short shared an important history. Those markets that rose the most during the bubble and suffered the most during the housing crash are also recovering at the slowest pace. As of May 2015, among the top 100 markets, most of the markets that lost 20 percent of their median value or less during the housing crash now have reached or exceeded their peak prices.

These include a number of markets like San Antonio, Oklahoma City, and Dallas, where prices didn’t rise much during the boom but have flourished lately with the energy industry growth in recent years.

Conversely, some markets that lost more than 20 percent are still far from rebound, including Las Vegas, Orlando, Fort Myers, and Stockton. Providence, RI trails the rebound report, having gained only 18.10 percent of the median value it lost.

Will we ever return to peak values?

With housing markets reporting strong price increases this year, the speed of the rebound is picking up and it’s almost certain that we’ll break the 50 percent barrier, as Mr. Mele notes. Perhaps in another eight yeas every market will surpass its 2007 peak, even Orlando and Las Vegas. By then, many if not most of the folks who bought homes in those markets just before the bubble busted will have sold, died, defaulted or rented them out to someone else.

Snowboarder Shaun White Lists Home For $2.195M

Shaun White at the Nickelodeon's 23rd Annual Kids' Choice Awards, UCLA's Pauley Pavilion, Westwood, CA 03-27-10

Two-time Olympic gold medalist snowboarder, Shaun White, just listed his three-bed, three-bath home off the Strip in the Hollywood Hills for $2.195 million. White bought the home for $1.7 million back in 2009.

A long driveway takes you to the beautiful 2,036 square feet home. It was built in 1963, but just had major remodeling done to its interior. And with its contemporary style vibe, it fits right in with Sunset Strip.

The single-level home includes newly installed hardwood floors, an open living room, a gourmet kitchen, a massive master suite, a guest bedroom, and a den. Nearly every room opens onto an expansive outdoor deck with clear views of West Los Angeles.

The property also contains a two-car garage with an additional two-car off-street parking spots and a private pool. Check it out for yourself.

How to Prepare for a Mortgage

Sure, you would love to own your home. You’re definitely tired of renting, but before making the leap to home ownership, there’s one question you will need to ask and answer: how much house can I afford?

Here are some basic tips to pin down the elusive answers concerning mortgage options, down payments, and budgeting for monthly expenses to help you decide if you’re financially ready to buy a home.

1. Choosing the Right Mortgage

The mortgage option you choose will affect all of your remaining decisions about down payments and monthly budgeting. Various mortgage packages are available for all home buyers, including FHA loans, conventional loans, VA loans, fixed rate loans, adjustable rate loans, and the more specialized Jumbo Loans. Your mortgage options should be thoroughly investigated and understood prior to beginning your search for a particular home.

2. Determining the Down Payment

Your down payment is one of the most important numbers to consider when purchasing a home. You should take into account your available savings, your comfort level in making the investment, and the closing expenses associated with your mortgage when making this decision. A mortgage banker can offer knowledgeable answers and guide you through this process.

3. Your Monthly Income and Expenses

As you research your available mortgage options and determine your down payment, you will need to consider your monthly income and the expense of becoming a homeowner. Items to examine include your weekly or monthly income, your utility expenses and other monthly obligations like car payments, student loans, groceries and transportation. If you maintain a checking account, you can prepare yourself to answer these questions by thoroughly examining your last six months of statements.

4. Covering the Unexpected

If you’re a first-time home buyer, you may not realize that all those calls to your landlord for repairs are now your responsibility. Storm damage, plumbing issues or a malfunctioning furnace can be very expensive.

Rest assured, there are options available that can help you protect yourself from unexpected repairs. Homeowner’s insurance, home warranties and home inspections are the most commonly considered. Many of these protections will offer plans with monthly premiums that can be included in either your mortgage payment or as an allocated monthly expense. A local realtor and your mortgage banker should be able to provide you with additional information and resources.


Home ownership is a big step. Arm yourself with a personal Total Mortgage mortgage banker who can help you make a carefully considered decision that is best for you and your family.