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Naples Florida Real Estate
Naples Florida Real Estate
Naples Florida Real Estate

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GAINESVILLE, Fla. – Feb. 16, 2017 – Homeownership nationwide is at a record low, but a slim majority of Floridians (50.1 percent) say it’s a good time to buy a house, according to a newly released University of Florida (UF) survey conducted in October and November. Only 19.3 percent thought it was a bad time, while the remaining 30.6 percent were uncertain.

A recently report from the U.S. Census Bureau found that the Florida homeownership rate dropped 8 percentage points to 64.4 as of 2016 – the lowest since the government started tracking the rate in 1984. Florida’s homeownership rate peaked at 72.4 percent in 2006 on the beginning fringe of the Great Recession.

However, the Florida homeownership rate is still higher than the U.S. rate, as it was before the Great Recession hit. The U.S. homeownership rate peaked at 69.0 percent in 2004 before falling 5.6 percentage points to 63.4 percent in 2016.

Reasons to buy
Among the survey respondents who favored buying a home now, the most common reason given was favorable interest rates (46.1 percent), a situation that might change in the months ahead as the Federal Reserve increases rates.

Other reasons are low home prices (18.7 percent), the availability of many homes (13.6 percent) and favorable economic conditions (12.4 percent).

Of those who thought it was a bad time to buy a house, unfavorable economic conditions topped the list (41.5 percent) followed by high house prices (31.1 percent) and difficulty qualifying for a mortgage (11.4 percent).

Opinions varied by gender, with “good time” chosen by 52.4 percent of men but only 47.2 percent of women. Positive attitudes also increased with age: 37.9 percent of young adults under age 30 said “good time” compared with 54.4 percent of those age 60 or older.

Why buy a home?
A home purchase depends largely on economic conditions and the purchaser’s lifecycle factors, such as forming a household or the exit of young family members from the home.

“Homeownership is seen as an important way to accumulate wealth and build assets over time, in particular among low-income and minority groups,” says Hector H. Sandoval, director of the Economic Analysis Program at UF’s Bureau of Economic and Business Research and an author of the study. He says some Floridians may not have the means to invest in the stock market, but their home will likely appreciate in value over time, provide a legacy to the next generation and could be used as collateral for a loan in times of need.

Regardless of volatility in house prices and maintenance costs, owning a home is not only associated with personal financial gains, but it also benefits the community.

“Homeowners have greater incentive to care about their community because their home values depend on both the physical characteristics of the house and the neighborhood,” Sandoval says.

The American Dream?
Since World War II, homeownership has been considered part of the American Dream. Is that dream still alive in Florida?

In the survey, 45 percent of Floridians strongly agreed (14.2 percent) or agreed (30.8 percent) that “owning a home is necessary to live The American Dream.” Over a quarter (26.8 percent) neither agreed nor disagreed, while 21.4 percent disagreed and 6.8 percent strongly disagreed.

There were significant differences by race and region regarding homeownership and the American Dream: 42.7 percent of whites agreed or strongly agreed compared with 51.5 percent of non-whites. Only 38.2 percent of those in North Florida agreed or strongly agreed, but over half (50.5 percent) of those in Southeast Florida agreed.

Renter attitudes
The survey sample included 362 non-owners who were also asked about their own likelihood of buying a house. Almost a third (32.3 percent) said they were unlikely to ever buy a house, while 10.8 percent planned to buy in the next year, 44.5 percent in the next five years and 12.4 percent in the next 10 years.

“Following the Great Recession, mortgage lending practices tightened,” Sandoval said. “Slow job growth together with the debt load of young adults, many of whom are paying down student loans, have prevented the entrance of new buyers to a rebounding housing market.”

Source: Florida Realtors

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WASHINGTON – Feb. 14, 2017 – Almost a decade after it all began, the Federal Reserve is finally talking about unwinding its grand experiment in monetary policy.

And when it happens, the knock-on effects in the bond market could pose a threat to the U.S. housing recovery.

Just how big is hard to quantify. But over the past month, a number of Fed officials have openly discussed the need for the central bank to reduce its bond holdings, which it amassed as part of its unprecedented quantitative easing (QE) during and after the financial crisis. The talk has prompted some on Wall Street to suggest the Fed will start its drawdown as soon as this year, which has refocused attention on its $1.75 trillion stash of mortgage-backed securities (MBS).

While the Fed also owns Treasuries as part of its $4.45 trillion of assets, its MBS holdings have long been a contentious issue, with some lawmakers criticizing the investments as beyond what’s needed to achieve the central bank’s mandate. Yet because the Fed is now the biggest source of demand for U.S. government-backed mortgage debt and owns a third of the market, any move is likely to boost costs for home buyers.

In the past year alone, the Fed bought $387 billion of mortgage bonds just to maintain its holdings. Getting out of the bond-buying business as the economy strengthens could help lift 30-year mortgage rates past 6 percent within three years, according to Moody’s Analytics Inc.

Unwinding QE “will be a massive and long-lasting hit” for the mortgage market, said Michael Cloherty, the head of U.S. interest-rate strategy at RBC Capital Markets. He expects the Fed to start paring its investments in the fourth quarter and ultimately dispose of all its MBS holdings.

Unprecedented buying

Unlike Treasuries, the Fed rarely owned mortgage-backed securities before the financial crisis. Over the years, its purchases have been key in getting the housing market back on its feet. Along with near-zero interest rates, the demand from the Fed reduced the cost of mortgage debt relative to Treasuries and encouraged banks to extend more loans to consumers.

In a roughly two-year span that ended in 2014, the Fed increased its MBS holdings by about $1 trillion, which it has maintained by reinvesting its maturing debt. Since then, 30-year bonds composed of Fannie Mae-backed mortgages have only been about a percentage point higher than the average yield for five- and 10-year Treasuries, data compiled by Bloomberg show. That’s less than the spread during housing boom in 2005 and 2006.

Talk of the Fed pulling back from the market has bond dealers anticipating that spreads will widen. Goldman Sachs Group Inc. sees the gap increasing 0.1 percentage point this year, while strategists from JPMorgan Chase & Co. say that once the Fed actually starts to slow its MBS reinvestments, the spread would widen at least 0.2 to 0.25 percentage points.

“The biggest buyer is leaving the market, so there will be less demand for MBS,” said Marty Young, fixed-income analyst at Goldman Sachs. The firm forecasts the central bank will start reducing its holdings in 2018. That’s in line with a majority of bond dealers in the New York Fed’s December survey.

The Fed, for its part, has said it will keep reinvesting until its tightening cycle is “well underway,” according to language that has appeared in every policy statement since December 2015. The range for its target rate currently stands at 0.5 percent to 0.75 percent.

Mortgage rates

Mortgage rates have started to rise as the Fed moves to increase short-term borrowing costs. Rates for 30-year home loans surged to an almost three-year high of 4.32 percent in December. While rates have edged lower since, they’ve jumped more than three-quarters of a percentage point in just four months.

The surge in mortgage rates is already putting a dent in housing demand. Sales of previously owned homes declined more than forecast in December, even as full-year figures were the strongest in a decade, according to data from the National Association of Realtors.

People are starting to ask the question, “Gee, did I miss my opportunity here to get a low-rate mortgage?” said Tim Steffen, a financial planner at Robert W. Baird & Co. in Milwaukee. “I tell them that rates are still pretty low. But are rates going to go up? It certainly seems like they are.”

Part of it, of course, has to do with the Fed simply raising interest rates as inflation perks up. Officials have long wanted to get benchmark borrowing costs off rock-bottom levels (another legacy of crisis-era policies) and back to levels more consist with a healthy economy. This year, the Fed has penciled in three additional quarter-point rate increases.

The move to taper its investments has the potential to cause further tightening. Morgan Stanley estimates that a $325 billion reduction in the Fed’s MBS holdings from April 2018 through end of 2019 may have the same impact as nearly two additional rate increases.

Finding other sources of demand won’t be easy either. Because of the Fed’s outsize role in the MBS market since the crisis, the vast majority of transactions are done by just a handful of dealers. What’s more, it’s not clear whether investors like foreign central banks and commercial banks can absorb all the extra supply – at least without wider spreads.

On the plus side, getting MBS back into the hands of private investors could help make the market more robust by increasing trading. Average daily volume has plunged more than 40 percent since the crisis, Securities Industry and Financial Markets Association data show.

“Ending reinvestment will mean there are more bonds for the private sector to buy,” said Daniel Hyman, the co-head of the agency-mortgage portfolio management team at Pacific Investment Management Co.

What’s more, it may give the central bank more flexibility to tighten policy, especially if President Donald Trump’s spending plans stir more economic growth and inflation. St. Louis Fed President James Bullard said last month that he’d prefer to use the central bank’s holdings to do some of the lifting, echoing remarks by his Boston colleague Eric Rosengren.

Nevertheless, the consequences for the U.S. housing market can’t be ignored.

The “Fed has already hiked twice and the market is expecting” more, said Munish Gupta, a manager at Nara Capital, a new hedge fund being started by star mortgage trader Charles Smart. “Tapering is the next logical step.”

Source: Penton Media, Liz Capo McCormick and Matt Scully with assistance from Christopher Maloney and Christopher Condo.

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TALLAHASSEE, Fla. – Feb. 14, 2017 – On the national stage, President Donald Trump’s immigration-policy reform actions will probably affect state economies and perhaps the real estate industry, though it’s not yet clear what the rules will be or their impact.

WalletHub analyzed data to weigh how each state’s potential impact, however, based on a ranking of its immigrant residents and business owners. They compared 50 states and the District of Columbia across 18 key metrics, ranging from “median household income of foreign-born population” to “jobs generated by immigrant-owned businesses as a share of total jobs.”

Overall, WalletHub found that Florida ranked 13 out of the 50 states. However, the state ranked in the top 10 percent in selected categories analyzed, including immigrant-owned businesses, percentage of foreign-born workers and the share of Florida’s population that wasn’t born in the U.S.

Immigrants’ economic impact on Florida (1=Biggest impact; 25=average)

» 4th –Percent of jobs generated by immigrant-owned businesses out of total jobs
» 27th – Net difference between state & local revenues and expenditures per individual immigrant
» 11th –Percent of foreign-born STEM workers out of total STEM workers (STEM means an educational background in science, technology, engineering or mathematics)
» 16th –Percent of Fortune 500 companies founded by immigrants or their children
» 27th –Percent of jobs created by international students out of total jobs
» 5th – Share of foreign-born workforce
» 4th – Share of foreign-born population

The full report is available online.

Source: Florida Realtors

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WASHINGTON (AP) – Feb. 9, 2017 – Long-term US mortgage rates eased slightly this week.

Mortgage buyer Freddie Mac said Thursday the rate on 30-year fixed-rate loans slipped to an average 4.17 percent from 4.19 percent last week. That was still sharply higher than a 30-year rate that averaged 3.65 percent for all of 2016, the lowest level recorded from records going back to 1971. A year ago, the benchmark rate stood at 3.65 percent.

The average for a 15-year mortgage declined to 3.39 percent from 3.41 percent last week.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage fell this week to 0.4 point from 0.5 point. The fee on 15-year loans also declined to 0.4 point from 0.5 point.

Rates on adjustable five-year loans eased to 3.21 percent from 3.23 percent. The fee remained at 0.4 point.

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TALLAHASSEE, Fla. – Feb. 9, 2017 – Looming ratings downgrades for six to eight Florida-based property insurers could affect about 250,000 policyholders statewide, forcing some to find new insurers, according to sources familiar with an advisory issued this week by ratings agency Demotech.

The company, whose Financial Strength Ratings (FSNs) determine which insurers are acceptable to lenders of mortgages backed by Fannie Mae and Freddie Mac, also announced that two state Supreme Court rulings that went against insurers in 2016 prompted it to suspend the standards by which it rates 57 Florida insurers.

The rulings, along with increased claims costs blamed on the Assignment of Benefits (AOB) repair clause, have “revised claims procedures, practices, and protocols from the industry standards that previously existed to a ‘Florida only’ standard,” Demotech said in the Feb. 6 advisory.

The Ohio-based national ratings firm said it will continue to analyze and rate companies as in the past, “but we will need to do so with a focus on the carriers’ responses to the challenges faced by AOB and the [two Supreme Court cases] in the execution of their business plans.”

The advisory also stated that Demotech asked some companies to “infuse additional capital.” Those that don’t before Feb. 28 “face potential [ratings] downgrades,” Demotech said.

Insurance companies are allowed to secure capital – through debt, asset sales or reinsurance buys – before Feb. 28 and apply it to their balance sheets as if they had it in place prior to the end of the previous year. The additional capital would show up in the companies’ 2016 financial reports.

Downgraded companies would lose the ‘A’ ratings required by federal lending agencies Fannie Mae and Freddie Mac, potentially forcing their customers to find new carriers to comply with the lenders’ requirements. according to two insurance industry officials.

They said they have conducted discussions with Demotech’s CEO about the issue. Demotech is introducing a new rating of B++ that will replace its previous “S” rating, one of the officials said.

Customers who will have to find new carriers could be force-placed by their lenders – raising their policy costs – or have no choice but to purchase policies from state-run Citizens Property Insurance Corp., the so-called insurer of last resort, the two officials said.

Demotech CEO Joseph Petrelli declined a request to be interviewed for this story, deferring further explanation to conference calls open to interested parties at 2:30 p.m. and 4:30 p.m. on Friday.

In a Feb. 7 story posted on the website of the trade publication Insurance Journal, Petrelli said 10 to 15 companies could be downgraded in March.

Yet the two industry officials who said they’ve communicated directly with Petrelli said they were told the number of downgrades range from four to eight.

Locke Burt, president of Ormond Beach-based Security First Insurance, said he expects downgrades to affect four to eight companies with 250,000 to 300,000 policies – roughly five percent of homes in Florida.

Jay Neal, president and CEO of the Florida Association for Insurance Reform, said he was told downgrades are looming for six to eight companies with about 250,000 policyholders.

But Neal said he doesn’t expect lenders to take immediate action against downgraded companies. A more likely scenario would be for the downgraded companies to spare the policyholders by rapidly merging with or being purchased by companies with healthier balance sheets.

“The market is due for mergers and acquisitions activity,” Neal said. “Some companies will be acquired by companies with capital to bring them into the rating [Demotech CEO] Joe [Petrelli] wants. Others will be folded into smaller carriers.”

Burt said he knows of “several companies that are for sale. They are looking to either merge or find new investors.”

Neal and Burt both said they have good ideas of which companies are in danger, but don’t want to name them. Neal said the companies are not concentrated in South Florida but have policies spread throughout the state.

Insurance companies sustained considerable losses in 2016, they said.

Demotech’s advisory noted insurers were impacted not only by increased Assignment of Benefits claims, but also by severe weather that “hammered the Sunshine State” throughout 2016. Those events included a tornado striking Cape Coral in January 2016, Hurricane Hermine striking the Florida Panhandle in early September and Hurricane Matthew’s track along the eastern coastline in October. Numerous companies paid losses from all three events, Neal said.

Burt, whose customers are concentrated in northern and central parts of the state hard hit by Matthew, said “financial reports of Florida-based companies are going to be awful when reported at the end of the month.” He said his company borrowed $60 million to shore up its 2016 bottom line.

Demotech’s advisory stated that all insurers survived events of 2016, and Neal pointed out that a ratings downgrade does not mean an insurer is failing. He contended that the downgrades will ultimately strengthen Florida’s market by enabling Demotech to distinguish the strongest companies from the merely healthy companies.

If policyholders are displaced by the downgrades, nearly all would be courted by other private insurers, or go to Citizens if necessary, Neal predicted.

Demotech said its future ratings criteria for Florida companies will be influenced by whether the state legislature takes action this year to reduce losses from Assignment of Benefits abuses.

An assignment of benefits is an affidavit that repair companies often require from homeowners that transfers benefits of the homeowners’ insurance policies. Insurers say contractors use assignments to file inflated claims and costly lawsuits. Contractors say assignments protect their interests and allow repair work to begin right away.

State insurance regulators are helping to develop a legislative bill to stem AOB losses, Neal said

Amy Bogner, spokeswoman for the Office of Insurance Regulation, said Demotech’s advisory “underscores the importance of legislative reforms to address the abuse of AOBs, provide consumer protections and promote a stable market for consumers in Florida.”

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WASHINGTON (AP) – Feb. 2, 2017 – Long-term US mortgage rates barely budged this week, after marking their first increase of the year last week.

Mortgage buyer Freddie Mac said Thursday the rate on 30-year fixed-rate loans was unchanged from last week at an average 4.19 percent. That was still sharply higher than a 30-year rate that averaged 3.65 percent for all of 2016, the lowest level recorded from records going back to 1971. A year ago, the benchmark rate stood at 3.72 percent.

The average for a 15-year mortgage ticked up to 3.41 percent from 3.40 percent last week.

After meeting this week, Federal Reserve policymakers left the key interest rate unchanged at a time of solid economic gains but also heightened uncertainty surrounding the new Trump administration. At the same time, the Fed pointed to improved sentiment among consumers and businesses.

Many economists think the Fed will put off further rate increases until more is known about President Donald Trump’s ambitious agenda, or whether his drive to cancel or rewrite trade deals will slow growth or unsettle investors.

Mortgage rates surged in the weeks following Trump’s election in early November. Investors in Treasury bonds bid yield rates higher because they believed his plans for tax cuts and higher spending on roads, bridges and airports will drive up economic growth and inflation.

But mortgage rates reversed course in the first week of the year, falling after nine straight weeks of increases.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage rose this week to 0.5 point from 0.4 point. The fee on 15-year loans also increased to 0.5 point from 0.4 point.

Rates on adjustable five-year loans rose to 3.23 percent from 3.20 percent. The fee remained at 0.4 point.

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GAINESVILLE, Fla. – Jan. 31, 2017 – Floridians’ consumer sentiment ticked up another half point to 97.8 in January – the highest reading since March 2002. It’s an increase from the 97.3 logged in December, according to the latest University of Florida (UF) consumer survey.

Florida’s upward trend also tracks the national figures released last week by the University of Michigan, with the national consumer sentiment index at the highest level since February 2004.

Of the five components that make up the Florida index, three increased and two decreased.

Perceptions of one’s personal financial situation now compared with a year ago showed the greatest increase, rising 5.4 points from 82.8 to 88.2. With the exception of those 60 and older, all Floridians shares this view.

Opinions as to whether it’s a good time to buy a big-ticket household item, such as an appliance, increased slightly from 101.2 to 102.3.

“Perceptions of current conditions improved among Floridians in the last month, as a result of the positive economic picture that prevailed in the state during the last year,” says Hector H. Sandoval, director of the Economic Analysis Program at UF’s Bureau of Economic and Business Research. “The recent surge in the level of confidence comes from perceptions and expectations about Floridians’ individual financial situations.”

And many Floridians expect their personal finances to continue to improve. Expectations of personal finances a year from now rose 2.5 points, from 103.9 to 106.4.

However, views on the future of the national economy were gloomier: Expectations of U.S. economic conditions over the next year dropped 3.3 points, from 99.9 to 96.6, while anticipated U.S. economic conditions over the next five years decreased 2.7 points from 98.5 to 95.8.

Economic data in Florida continues to be generally positive. Although the December unemployment rate in Florida remained at 4.9 percent, the number of jobs added last year statewide was 251,400 – a 3.1 percent increase year-to-year. The industry sector gaining most jobs was leisure and hospitality, followed by education and health services, then professional and business services.

“There is no doubt that the state’s economy is in better shape than it was several years ago,” Sandoval says. “However, both short- and long-run expectations about the national economic situation are pessimistic, particularly over the next year. These negative expectations are shared by most Floridians but are strongest among those with incomes under $50,000.”

Sandoval thinks the diminished national expectations may reflect uncertainty associated with upcoming economic policy changes under the new U.S. administration. “The next few months will be key to understanding these changes and assessing their potential impact on the economy,” he adds.

Conducted Jan. 1-26, the UF study reflects the responses of 449 individuals reached on cellphones, representing a demographic cross section of Florida. The index used by UF researchers is benchmarked to 1966, which means a value of 100 represents the same level of confidence for that year. The lowest index possible is a 2, the highest is 150.

Source: Florida Realtors

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ORLANDO, Fla. – Jan. 30, 2017 – Many homeowners who need to move decide to sell their current home so they can have plenty of cash to buy their next digs. Still, though, some might wonder: Should I sell or rent out my house? It’s a good question.

Owning rental property, after all, brings in predictable, long-term income. But make no mistake, backing into a landlord role comes with some hefty responsibilities – and no small amount of headaches.

Here are some questions to ask yourself to help you decide which road is right for you.

Can you afford to own two homes?

“Financial wherewithal should be the No. 1 component as you weigh whether to hold on to the house,” says John Lazenby, 2016 president of the Orlando Regional Realtor® Association. Here’s what that means:

First, consider whether you will need two mortgages, one for the new house you are (presumably) buying and one for the potential rental. If you have owned your home long enough, you may have enough equity that you can pay off the balance and be free and clear. If not, you’ll want to consult with a mortgage adviser to make sure you will qualify for a mortgage on both the rental and the home you’ll be living in.

Do the math on the return on investment of a rental. Check into local rental rates and see if there is a viable tenant stream, says Koki Adasi, team leader and founder of Koki & Associates at Long & Foster in Washington, D.C. If you are depending on the rental income to cover the mortgage on your new home, you’ll need to be able to charge enough to cover that and then some. After all, a rental comes with its own expenses-like maintenance, repairs, and, if you opt for it, property management.

There also may be times the house sits empty between tenants.

“If the total monthly amount that you need supersedes rental market value, you may end up taking a monthly loss,” Lazenby says.

Also factor in potential tax benefits, advises Adasi. “Check into what costs you can write off, such as mortgage interest, property tax, operating expenses, depreciation and repairs,” he says. In most states these expenses are tax write- offs; you also might be able to deduct fees associated with running the rental, including property management, attorneys and cleaning services.

Will your old property appreciate?

Market conditions should weigh heavily in your decision as well.

“If you purchased the home at a good price and its value is rising steadily, you may want to hang on to it and accept any potential monthly loss in exchange for keeping your investment,” Lazenby says. You also might want to keep the home if you’ve recently purchased it and it has not yet increased enough in value to cover costs associated with selling, such as closing costs, transfer taxes and other fees, says Adasi.

Look into comparable values in the neighborhood to evaluate the long- term outlook. Determine whether trends are pointing toward it being an up-and-coming locale or one on the decline. Although it’s impossible to predict the future, those types of evaluations can help you determine if the property is likely to rise or fall in market value.

And, consider the “opportunity cost.” Evaluate whether you would potentially make more investing that money elsewhere, such as in the stock market or other retirement vehicle.

Can you effectively oversee the rental?

Being a landlord isn’t for everyone, points out Lazenby. “Ask yourself if you will be able to tolerate the stress that comes with being responsible for the home you’re living in, as well as a rental, particularly if it is long-distance.”

And before you become a landlord, you need to conduct your due diligence: A decent amount of upfront research is needed on the licensing and other laws that pertain to rentals in your city, county and state.

Will you ever want to return to your home, sweet home?

If you’re relocating, either for work or personal reasons, consider the possibility that you might return to the area at some point to be near family or friends, suggests Lazenby. If the home offered everything you wanted and the financial factors line up, you may choose to rent it out so that you one day have the option to return.

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WASHINGTON – Jan. 24, 2017 – Republicans are raising the prospect of making the biggest change to home loans since the New Deal.

Two of President Trump’s Cabinet picks, along with Republican lawmakers, have been speaking publicly about curbing government backing for the kind of loan that the majority of Americans rely on to buy a house: the 30-year fixed-rate mortgage. Supporters of the change say removing U.S. backing could protect taxpayers from being on the hook for billions of dollars in the event of a market collapse – as they were after the financial crisis of 2008.

But some in the housing industry say that without the government’s support, 30-year mortgages may become scarce, leaving homeownership out of reach for many Americans.

“Eliminating the government guarantee would likely lead to higher rates, making credit more expensive, or take the 30-year fixed-rate option off the table altogether,” said William Brown, president of the National Association of Realtors.

Making changes to the housing market carries political risk. If homebuyers can’t obtain affordable mortgages, they may turn against Republicans responsible for the change. About 71 percent of home purchases and refinances in October used a 30-year fixed-rate mortgage, according to the Urban Institute, a Washington-based research group.

Ben Carson, Trump’s nominee to be secretary of the Department of Housing and Urban Development, told senators Thursday that the 30-year mortgage could survive without a government guarantee. He said the private market could take on much of the responsibility.

“You can’t do it overnight. It has to be a gradual change,” Carson said at his confirmation hearing. “We can’t do it in a haphazard way, and we can’t do it in an ideological way.”

Trump hasn’t detailed any formal policy on mortgages, and Carson’s comments came only after being asked about the topic. Transition spokeswoman DJ Nordquist said in an email after the hearing that Carson “believes strongly” in the need for a 30-year mortgage option.

Until recently, such debates have been mostly academic.

While the Republican-controlled House Financial Services Committee has passed legislation that would constrict the government’s role in the market, such plans never had much of a chance getting past the Senate or President Obama. Now, with Republicans controlling the legislative and executive branches, curtailing the government-mortgage guarantee is becoming more than an ideological pipe dream.

Fannie Mae and Freddie Mac, created by the government and spun off as shareholder-owned corporations, for years have been the foundation of the housing market and have backed the 30-year mortgage. They purchase mortgages and package them into bonds, absorbing much of the risk, making it easier for homebuyers to obtain loans and freeing up money for banks to make more loans. When the housing market melted down in 2008, the government spent $187.5 billion bailing out Fannie and Freddie. Since then, they’ve become profitable again and sent the government more than $250 billion in dividends.

Steven Mnuchin, Trump’s pick for Treasury secretary, said Fannie and Freddie should “absolutely” be privatized, in an interview with Fox Business Network on Nov. 30.

Some mortgage investors and others in the housing industry are expecting an overhaul.

“I don’t know anyone who’s not at least paying lip service to the idea that having a market dominated by the government is not a good idea,” said Lewis Ranieri, who runs an investment-management firm and helped invent the mortgage-backed security.

History of the fixed-rate mortgage

Before the Great Depression, most Americans had short-term mortgages with a balloon payment due at the end of the loan. Banks pulled back on mortgage lending during the Depression, which worsened the economic crisis.

Since then, the government has had a large role in backing mortgages. As part of the New Deal, President Franklin Roosevelt and lawmakers created the Federal Housing Administration (FHA), which insures lenders against default. That eventually led to the creation of the 30-year mortgage backed by the government. In subsequent decades, lawmakers created Fannie Mae and Freddie Mac, which make similar guarantees and carried implied government backing.

During the housing boom in the 2000s, the private market was often willing to make mortgages on more generous terms than Fannie, Freddie or the FHA. In 2005 and 2006, the private market took on well over half of mortgages without any sort of government backstop, according to the Urban Institute Housing Finance Policy Center.

The private market’s role dropped sharply in the crisis. Now the government backs about two-thirds of the market, with the remaining one-third mostly composed of large mortgages to safe borrowers that banks are willing to keep on their balance sheets.

Current discussions

Getting the private market to take on more mortgage credit risk is a goal of many Republicans, even if it comes with higher mortgage rates, lower homeownership or even the death of the 30-year mortgage.

“I don’t remember seeing the 30-year, fixed-rate mortgage and the right to own a home in the Constitution,” said Anthony Sanders, a finance professor at George Mason University who has testified before Congress on housing-finance reform.

The financial services committee, led by Texas Republican Jeb Hensarling, in 2013 passed a bill that would liquidate Fannie and Freddie and reduce the number of loans eligible for FHA backing. That has met opposition from housing industry groups that think it would shut millions of borrowers out of the mortgage market and cause a new housing crisis.

Among the problems with curtailing the guarantee, supporters say, is the effect such a move would have on less-well-off borrowers who benefit the most from the subsidies. Fannie, Freddie and the FHA in effect subsidize the costs of riskier borrowers with fees from borrowers unlikely to default, said Sarah Wolff, senior researcher at the left-leaning Center for Responsible Lending.

It is also unclear how much appetite the private market has to take on mortgage credit risk and at what price. Issuance of private-label mortgage-backed securities has been moribund since the crisis.

Some lenders say that’s because private investors can’t compete with the prices the government charges, while others point to ongoing structural issues in the private market.

Fannie and Freddie are already starting to pass off some of their own mortgage-credit risk to private investors. Since 2013, the companies have sold bonds that let investors take on some of the default risk.

Even those securities are controversial. Fannie and Freddie aren’t getting good enough prices from investors to warrant the sales and are effectively siphoning profits to investors, said Ann Schnare, an independent financial consultant and former executive at Freddie.

Still, Ranieri said such sales might give a smoother route to bringing more private money back into the market than more extreme proposals.

“When you try and wean someone off drugs, you can’t go cold turkey,” Ranieri said.

Source: Valley News, Joe Light

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NEW YORK – Jan. 20, 2017 – Annual inflation hit a 21/2-year high in December amid rising gasoline prices as a core measure of inflation increased moderately.

The consumer price index rose 0.3 percent, the Labor Department said Wednesday, matching economists’ estimates. Prices were up 2.1 percent the past year, the largest annual jump since May 2014.

Core inflation, which excludes volatile food and energy items, advanced 0.2 percent, also in line with economists’ forecasts. The reading was up 2.2 percent the past 12 months.

Pump prices increased 3 percent last month and have climbed steadily since August. Regular unleaded gas averaged $2.34 a gallon Tuesday, up from $2.24 a month ago, according to AAA. But grocery prices fell for the eighth consecutive month. Prices increased 0.3 percent for rent, 1.9 percent for airline fares, 0.5 percent for used cars and trucks and 0.8 percent for motor vehicle insurance. Clothing prices fell 0.7 percent.

“Overall, inflationary pressures at the consumer level still remain modest but are rising now compared to year-ago levels,” Contingent Macro Research wrote in a note to clients.

The Federal Reserve raised its benchmark interest rate last month for the first time in a year and forecast three hikes in 2017. Fed policymakers cited inflation that could accelerate as a result of a low unemployment rate that’s likely to push up wages and President-elect Donald Trump’s fiscal stimulus plan. Fed Chair Janet Yellen has said she still expects only gradual hikes as consumer prices increase moderately.

Source: USA TODAY, Paul Davidson
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