Category Archives: Mortgage & Real Estate

Fannie Mae EXCLUSIVE: The crisis in affordable rental housing, Part 1

Across America, millions of households are struggling to find a place to rent they can afford. Fewer than half will find affordable rental housing; fewer than one in four of our poorest renter households will do so. And even those who find a rental will likely face rent hikes in the near future that may eat up any increases in their income. This crisis threatens household stability, education, health, the environment, and the quality of our neighborhoods.

The cost of the crisis is very real to me. In the 1960s, my father lost his job. He got sick at the factory where he worked and he was not part of a union – our home was foreclosed on. We moved around a bit before we settled into public housing in South Philadelphia.

We were lucky. Our rental home was affordable; it was a safety net for us. But I saw so many others struggling to find jobs with decent wages, good schools for their children, and safe neighborhoods. All while grappling with the lack of stable, affordable housing.

At Fannie Mae, we provide affordable housing opportunities for renters and owners. It’s what we focus on every day. This focus gives us some insight into the causes and potential solutions to the current affordable rental crisis.

To help spark creative solutions, we must better understand the scope of the affordability problem, how we got here, and what some communities are doing to address the issues.

What it means to be cost burdened

More than one-third of U.S. households – about 44 million – are renters, and nearly 60% are classified as low income (households with income from 51% to 80% of the area median income or AMI), very low income (31% to 50% of the AMI), or extremely low income (below 30% of the AMI). These are the families most likely burdened by rent costs.Cost burdened chart

Households that spend more than 30% of their income on rent are considered “cost burdened.” While about half of all renter households are cost burdened, an estimated three-quarters of extremely low-income renters are in that category.

Households spending more than half their income on rent are considered to be “severely cost burdened.” About one quarter of all renter households fall in that category, yet that percentage soars to 59% of extremely low-income renters.

For every affordable unit added, two are lost

That’s because there’s a disconnect between the units being built (the supply) and who’s able to rent them (the demand).

While it costs about as much to build an apartment project for low-income tenants as a market-rate project, many builders are focused on projects that will command higher rents. According to the Dodge Data Analytics Construction Pipeline, about 343,000 apartment units were completed in 2016, with another 400,000 units expected to come online in 2017. Most of this new supply is high-income rentals located in large cities where Millennials are driving rental demand.

When it comes to new affordable units, about 100,000 are built each year on average, says the National Housing Trust. Yet the market supply is not going to keep up: For every new affordable unit added, two are lost from deterioration, abandonment, or conversion to market-rate housing.

Further, according to the National Low Income Housing Coalition, about 360,000 privately owned, federally subsidized units have been converted to market-rate housing since 1995, with another 10,000 to 15,000 units leaving this inventory every year. In addition, more than 2 million units are at risk of loss over the next decade.

How did supply dry up?

During the Great Recession, multifamily construction fell sharply. After the recession ended in June 2009, demand started to rise – both from previously displaced renters and from new Millennial first-time renters. However, multifamily construction didn’t rebound in a significant way until 2013, and has been playing “catch up” ever since.

In addition, construction of subsidized housing has declined as a percentage of all new multifamily construction and now represents only around a fifth of new construction annually – not enough to keep pace with demand.

Finally, costs of construction, including rising wages for construction workers nationally, have increased across the country, not just in strong metropolitan areas.

As a result, without a subsidy, developers are only willing to undertake new projects where they can generate higher rents.

Driving demand

Increased demand for rental housing stems from several factors. Millennials, those 75 million young adults born after 1980, are one of the biggest drivers of current rental housing demand. In record numbers, they are deferring homeownership, choosing to rent rather than buy. High-income renters, typically those who can afford to buy a house, are choosing to rent an apartment instead. They now represent more than 20% of all renter households. Collectively, this contributes to a 26% increase in estimated national rent levels since 2005.

Wage growth is starting to line up with rent increases

Wages and asking rent levels are two factors that play a big role in affordability. All other things being equal, it’s more affordable to rent when wage growth keeps pace or stays ahead of rent increases.

It looks like that’s starting to happen. Over the next two years, growth in household income is likely to outpace growth in asking rents by about 2%, cumulatively. But that’s based on projections showing that median household income might grow by nearly 7% while rent growth returns to more normalized levels in the 2 to 2.5% range.

Even so, this will contribute to only modest improvements in rental housing affordability.

What’s the answer? Check back tomorrow to find out how communities are working toward solutions.

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Freddie Mac: Cash-out refinance activity highest since the bust

This years is shaping up to outpace expectations thanks to a resilience in refinance demand, especially when it comes to cash-out transactions.

According to Freddie Mac’s May Economic and Housing Research Outlook report, 2017 is performing so well that its increased its 2017 forecast for mortgage originations by just over $200 billion and added $100 billion to our 2018 forecast.

The year started out with a surprise uptick in refinance borrowers took cash out, increasing to 49% in the first quarter of 2017, which is up from 44% in the fourth quarter of 2016.

Freddie noted that this is the highest share since the fourth quarter of 2008.

However, it cautioned that the data is still below the peak of 89% in the third quarter of 2006.

The data doesn’t come as a shock though given that home prices have long been on the rise. The Federal Housing Finance Agency’s latest home price report showed that seasonally adjusted monthly index for March was up 0.6% from February.

Looking at it from a different perspective though, even though the percentage of refinance borrowers taking cash out increased in the first quarter, the total dollar amount cashed out decreased. In the first quarter of this year, an estimated $14 billion in net home equity was cashed out, down from $19.1 billion in the fourth quarter of 2016.

But despite volume increasing in recent quarters, it is still below the peak of $84 billion in the second quarter of 2006.

Plus, continually low interest rates are majorly contributing the strength in the housing market. Mortgage rates for the 30-year fixed-rate mortgage reached as high as 4.3% in March.

Since then, rates have declined about a quarter of a percentage point to right around 4% where they have been holding in recent weeks. This won’t stick around forever though, as mortgage rates are likely to head higher later this year.

“Despite weak economic growth, housing got off to a good start in 2017 because low mortgage rates have given the spring homebuying season a pleasant surprise,” said Sean Becketti, chief economist with Freddie Mac.

“Mortgage rates started March just above 4% and have mostly drifted lower since then, even falling below 4%. With home sales, housing starts and home values up, 2017 is shaping up to be the best year for housing in over a decade,” said Becketti.

The chart below is an updated version on Freddie’s forecasts for the year, which includes real GDP, mortgage rates, housing starts and home sales. 

Click to enlarge

housing forecast

(Source: Freddie Mac)

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SEC accuses Texas mortgage lender of running massive Ponzi scheme

A North Texas man who raised nearly $23 million from investors under the guise of investing in the mortgage business actually used some of the money for his own personal use, while funneling money to a supposed concert promoter who claims to represent Taylor Swift and Drake, the Securities and Exchange Commission said this week.

According to the SEC, Thurman Bryant III (Trey) and his company, Bryant United Capital Funding, raised approximately $22.7 million from approximately 100 investors across the country by falsely promising “risk-free, guaranteed” returns on investments of at least 30% annually based on investments Bryant would make in the mortgage industry.

Included in that $22.7 million is approximately $1.4 million that Bryant raised this year after finding out in December 2016 that he was under an SEC investigation.

Specifically, the SEC alleges that Bryant told investors that Bryant United Capital Funding would fund mortgages, which would then be immediately sold to third parties in exchange for a fixed fee.

According to the SEC, Bryant allegedly told those investors that their money wouldn’t be used to fund the mortgages or in the operation of the company. Rather, Bryant allegedly told the investors that their money would placed in a “safe escrow account” to serve as proof of funds to acquire a line of credit, which would be used to fund the mortgages.

The SEC further alleges that Bryan and his company sent monthly account statements to the investors purportedly showing that their initial investment were still safe in that supposed escrow account.

But, the SEC states that Bryant’s representations to investors were false.

Instead of using the money for investment in the mortgage industry or any other legitimate means, the SEC states that Bryant was allegedly running a Ponzi scheme, using the money for himself and others and paying investors with other investors’ money.

According to the SEC’s complaint, Bryant combined the investor funds into a single deposit account over which he had sole control and intentionally misappropriated $4.8 million to cover personal expenses, including the following monthly expenses:

  • $9,750 (and then $18,000 per month beginning in April of 2016) to rent a house in Frisco, Texas
  • $3,500 in lease payments for luxury and other vehicles
  • $1,800 for a housekeeper
  • $3,000 for meals and groceries
  • $3,400 for private school tuition
  • $1,000 for horse riding expenses
  • $1,200 for an apartment

Bryant also spent more than $250,000 to furnish and decorate his rented home, the SEC complaint states.

In addition to the $4.8 million Bryant allegedly kept for himself, he also allegedly funneled approximately $16.1 million to Houston, Texas-based Wammel Group for “high-risk” securities trading and investments in various businesses.

Then, after learning that he was under SEC investigation, Bryant then allegedly sent $1.37 million to supposed concert promoter Carlos Goodspeed d/b/a Top Agent Entertainment for “no apparent legitimate or lawful reason,” the SEC stated.

According to the SEC complaint, the funds were to be used to promote concerts by Taylor Swift and Drake.

But the SEC complaint states that Goodspeed is not what he claims to be.

From the SEC complaint (emphasis is HousingWire’s):

Bryant intentionally or at least recklessly put BUCF investor funds at risk by transferring them to Goodspeed, not only because doing so violated his express promises to investors about how their money would be used, but also because even a rudimentary review of Goodspeed’s background online and in public records would have revealed relevant concerns about his track record and reputation. Goodspeed provided no services or consideration in exchange for these funds, and has no legitimate claim to monies which were misappropriated from unwitting investors who were promised a no-risk investment in the mortgage industry in which their principal would be protected against loss in secured escrow accounts.

The SEC complaint lists five separate civil or criminal issues that Goodspeed has been involved in over the last few years, including being found liable by default judgment for fraud and breach of contract in connection with a supposed promise to secure concerts by Drake and Ciara in 2011; as well as being found liable by default judgment for breach of contract in connection with an agreement to secure an event with Jay-Z.

Bryant also sent $140,000 to his father, who was Bryant’s first investor when he founded the company in 2011.

According to the SEC, to date, Bryant United has paid approximately $16.8 million to its investors in the form of purported investment returns and, for certain investors, significant referral fees for identifying new investors.

The SEC adds that the company “has never used investor monies as Bryant claimed it would, and monies paid out as referral fees and supposed profits on investments are, rather, misappropriated monies sourced from other investors, including Ponzi payments.”

The SEC charged Bryant and his company with various violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC is seeking permanent injunctions, civil penalties, and disgorgement with prejudgment interest.

Additionally, a federal judge appointed a receiver over Bryant’s assets and entered a temporary restraining order, asset freeze, and other equitable relief.

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