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ABN AMRO Mortgage Group today released its third quarter production figures which show a decrease of 69% as compared to the same quarter a year ago. While ABN AMRO didn’t release any figures by loan type I wonder how much of that was in low rate teaser ARMs and interest only mortgages:
”The LIBOR and interest-only mortgages are now available through all of AAMG’s lending channels, wholesale and retail, representing a viable opportunity to meaningfully increase production in the coming months,” said Mike Maher, group senior vice president, ABN AMRO Mortgage Group. ”These new adjustable rate mortgage products, steadily growing in popularity as interest rates remain at historically low levels, enable AAMG to meet the needs of a wide range of consumers.”
That wide range of consumers of course includes those who will no longer achieve equity increases as a result of a steady stream of monthly mortgage payments - historically one of the best methods of increasing net worth.
The U.S. Justice Department is pushing the Massachusetts House to approve legislation allowing some real estate closing services to be performed by non-attorneys. The services include representing lenders as closing agents and drafting deeds, mortgages and agreements. Justice Department official R. Hewitt Pate said the bill would lower closing costs because these non-lawyers would charge lower fees than lawyers. He also noted that the increased competition would encourage lawyers to lower their fees. Opponents argue that the bill would hurt consumers by allowing unqualified persons to provide these complicated services. The bill was given a favorable report by the House Judiciary Committee in July but has not yet reached the House floor.
Welcome to the 21st century.
The Texas Real Estate Confidence Index, an index that gauges the outlook of realtors, builders and lenders for the performance of the Texas real estate market, dropped for the fourth quarter, compared with the same quarter last year and the third quarter of this year.
The drop is mostly attributed to the outlook of residential mortgage lenders. “A huge number of homeowner’s refinanced their mortgages when interest rates dropped several years ago. Now that the market for refinancing is all but dried up, the major source of financing business must come from the sale of new and existing homes. With so many mortgage lenders and brokers chasing a much smaller market, some of the smaller, less aggressive, and less well-known firms most likely will be weeded out,” said James H. Leigh, associate research scientist for the Real Estate Center at Texas A&M University, the producer of the report.
Residential realtors and builders also have lower expectations for the fourth quarter. Commercial lenders have the highest index score representing the most optimistic outlook.
The conventional wisdom is that there is a great opportunity for the real estate and mortgage industries to reach out to minority groups in an effort to meet their housing needs which in turn will create strong housing demand. But my interpretation of the recently released report from the Pew Hispanic Center is cause for some reflection on this issue.
”The Wealth of Hispanic Households: 1996 to 2002” reports that the median net worth of non-Hispanic white households was $88,651. This compares with $7,932 for Hispanic households and $5,988 for non-Hispanic blacks. Clearly the differences are pronounced and much more dramatic that I had realized.
The study noted that “the percentage of white households who owned homes in 2002 was 74.3 percent…(and) the homeownership rate for Hispanic and non-Hispanic blacks were 47.3 and 47.7 percent respectively.
It’s easy to see where the gap originates, in part. With ever increasing home values and with home equity being the key component of household wealth the strength in the housing market contributes to the relative wealth difference in favor of existing homeowners. As the Pew report notes the net worth of renters is only one percent of the level of the net worth of homeowners.
The report continues, “Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.” The report suggests ”huge opportunities for brokers, builders and lenders.”
But is that opportunity at this time really that great? Look again at the median net worth of non whites quoted above. Assuming households are unlikely to spend 100% of their net worth on a downpayment, where is the money going to come from to buy a new home…even a starter home. Assuming an average starter home cost at 75% of the median value of all homes the downpayment requirements of even these lower cost homes seem to be out of reach of the current median non white household. It seems to be, therefore, that while this is an opportunity for the real estate and mortgage industries to be aware of, it will be a number of years before it returns significant benefits. It will require a long term outlook and a short term investment that may only be an investment in the future.
”The record level of debt being carried by American households and soaring home prices do not appear to represent serious threats to the U.S. economy, Federal Reserve Chairman Alan Greenspan said Tuesday.”
”In a speech before America’s Community Bankers, the organization that represents smaller banks in the country, Greenspan sought to play down worries about the high debt levels being carried by American households as a percentage of their after-tax incomes and the steep increases in home prices in recent years.”
More here.
