The Real Estate Report 1/17/2014

The Employment Report Disappoints
Just when we were starting to get used to strong jobs data we were reminded of an important adage -- never try to predict the future. While the analysts were predicting December job growth would be around 200,000, the number came in short of 100,000. This number disappointed the markets. In a strange twist, the unemployment rate fell from 7.0% to 6.7% when no decrease was expected, but this was not seen as a sign of strength as many left the workforce in December.
In all, the economy added just over two million jobs in 2013 which is pretty close to what occurred in 2012. This translates into approximately 170,000 jobs per month. All the while the unemployment rate has been dropping and we seriously doubt that such a precipitous drop in 2013 -- over 1.0% -- is due entirely to a smaller work force. We are now getting close to where we have replaced the over eight million jobs lost during the recession, but we are not quite there yet. Three important points about the jobs report.

First, these numbers are subject to future revisions. We would not be surprised to see the numbers revised upwards one month from now, especially considering the fact that the private payroll report showed over 200,000 jobs added for December. For example, in the same report November numbers were revised upward by 38,000. Secondly, weather issues in December could have depressed the numbers temporarily. Finally, rates fell initially in reaction to the report and the stock market did not show a negative reaction. Why? These numbers are not strong enough to prompt the Federal Reserve Board to abandon their stimulus program more quickly than planned. If revisions don't change the numbers, the halt to rate increases represents good news for consumers and business.

New lending rules went into effect that aim to put an end to the worst home loan lending abuses of the past. The new rules are designed to take a "back to basics" approach to residential lending and lower the risk of defaults and foreclosures among borrowers, according to the Consumer Financial Protection Bureau, which issued the new rules."No debt traps. No surprises. No runarounds. These are bedrock concepts backed by our new common-sense rules, which take effect today," said CFPB director Richard Cordray in remarks prepared for a hearing. Lenders are being asked to comply with two new requirements: The Ability to Repay rule and Qualified Mortgages. Here's how they will impact borrowers:

·         Ability to Repay. Lenders must determine that a borrower has the income and assets to afford to make payments throughout the life of the loan. To do so, the lender may look at your debt-to-income ratio, which is how much you owe divided by how much you earn per month, including the highest housing payments you would be required to make under the terms of the loan. To calculate your debt-to-income ratio, add up all your monthly obligations -- including student loan, credit card and car payments, housing costs, utilities and other recurring expenses -- and divide it by your monthly gross income.
In an effort to put an end to no- or low-doc loans, where lenders issue risky loans without the necessary financial information, lenders will be required to document and verify an applicant's income, assets, credit history and debt. Underwriters must also approve loans based on the maximum monthly charges you face, not just low "teaser rates" that last only a matter of months, or a year or two, before resetting higher.

·         Qualified Mortgages. To make sure you aren't taking on more house than you can afford, your debt-to-income ratio generally must be below 43%. This rule is not absolute. Banks can still make loans to people with debt-to-income ratios that are greater than that if other factors, such as a high level of assets, justify the risk. Qualified mortgages cannot include risky features, such as terms longer than 30 years, interest-only payments or minimum payments that don't keep up with interest so your mortgage balance grows. Upfront fees and charges cannot add up to more than 3% of the balance. That includes title insurance, origination fees and points paid to lower interest rates

Lenders don't seem to be too worried about the new rules, according to Keith Gumbinger of HSH.com, a mortgage information provider. "It's no surprise; everybody has been preparing for the change for months," he said. "Because there will be additional underwriting scrutiny, it could gum up the works initially and slow loan processing, but it's really just the codification of things that are already in place." A significant factor is what's not in the rules. There's no minimum down payment or credit score requirement. The lack of a credit score requirement will enable lenders to loosen currently tight underwriting standards in the future should conditions warrant, according to Gumbinger. Source: CNN/Money

Jennifer Odom