Student Loan Debt’s Impact on Housing

Rising student loan debt could very well be the next financial crisis in the U.S., and though it probably would not be as far reaching as the subprime crash, the housing industry might still feel its impact. Student loan debt could keep some in this generation from the American dream of home ownership.

The New York Times started a series of articles over the weekend, “Degrees of Debt.” The first story in the series, “A Generation Hobbled by the Soaring Cost of College,” focused on the cost of college and what it means to graduating seniors. While the average student loan debt was $23,300 in 2011, it’s more per student in Ohio, where the series is focused. Ohio’s sixth from the bottom in financing per student.

The students in the article will be stunted for years, if not decades, by their college debt: Kelsey Griffith, 23, recently graduated from Ohio Northern University in Ada, Ohio, with $120,000 of tuition loans to pay off. Chelsea Grove, 24, dropped out of Bowling Green State University in Bowling Green, Ohio, owing $70,000. Evan Frank, 22, borrowed $80,000 to attend Ashland University in Ashland, Ohio.

Add into the equation that those graduating seniors enter a tough job market (Though the outlook’s brighter than it was in 2008, according to an Associated Press story), and the reality is that home ownership might be a decade or more away for these students.

These students will have a tough climb out of tuition debt, and what awaits them at the top might be low FICO scores and a wariness to owe so much money again. Home ownership’s called the American dream for a good reason, though, and hopefully the recession won’t cripple this generation for long.

Here are some articles that might help with the credit scores:

Students Flunk Intro to Credit

Guarding Your Credit History

Clean Up and Save

Improve Your Credit Score

Related posts:

1. Should I Pay Off Student Loans Or Put Money Down On A House?

More Americans Have FICO Scores of 800+

(Moneyland) — Could this be a light at the end of the credit crisis tunnel? According to new research from Fair Isaac Corporation, the company responsible for FICO scores, the percentage of Americans with top-notch credit scores is the best it’s been since 2008. In addition, the number of people in the bottom tier of the credit spectrum has fallen to pre-recession levels. 

But these improving signals are tempered by data that shows a growing number of people stuck in a kind of credit limbo with scores that aren’t horrible, but aren’t good enough to take advantage of low interest rates for things like mortgages and car loans.

FICO scores range from 300 to 850. In 2011, 18.3% of people had FICO scores between 800 and 850. Interestingly enough, this figure was at its lowest the first year FICO began tracking this data in 2005. That year, top-scorers comprised 16.9% of the population. By 2008, that had climbed nearly two percentage points to 18.7% before it began to fall.

It’s good news that more people today are exercising diligence about keeping their credit scores high by doing things like paying bills on time, not applying for new credit lines and keeping balances on existing cards well below their limits.

What keeps this good news from being great news is that lenders have much higher credit requirements than they did pre-recession, so what used to be a great credit score is now just barely decent. Increasingly, borrowers find they need scores in this range — 720 is the cutoff some lenders use — if they want to snag the best rate on a line of credit.

Read more: http://moneyland.time.com/2012/05/14/more-americans-have-fico-scores-of-800/#ixzz1usvwGkQ1

Short URL: http://www.thenichereport.com/?p=8897

Mortgage Rates Hold Steady At All Time Lows

Mortgage Rates paused their recent trend of moderate improvement today to hold steady near all-time lows.   Despite an abundance of domestic economic data out this morning, rates continue to be indirectly fueled by political and economic turmoil in the Euro-zone.

After failing to form a new government, Greece today announced it would hold new elections.  Investors fear that those left in power will lead Greece to back-out of the austerity pledges required by the EU and IMF for recent bailout monies as well as Greece’s membership in the EU.

If Greece stops receiving that money, they’re all but guaranteed to officially default (their recent debt-restructuring was already a default by some standards), and also all but guaranteed to be booted out of the European Union.  If those things happen, investors fear a domino effect for the entire Euro-zone, and thus are currently very interested in the relative safety of German and US government debt—a phenomenon sometimes referred to as a “flight-to-safety.”

While it’s not clear how long European events will keep interest rates low and stable, it is clear that this has been the case, and has resulted in interest rates falling in line with all-time lows.

For only the 2nd day since early February, the Conventional 30yr Fixed Best-Execution Rate is arguably straddling 3.75% and 3.875%.  Some lenders’ rate sheets are structured such that 3.75% is clearly Best-Execution, though a majority remain at 3.875%.  But even among those lenders, 3.75% is an increasingly viable quote (read more about Best-Execution calculations)

Until and unless mortgage rates actually break into NEW all-time lows, we’ll likely keep reiterating that which has already been said:

We see two diametrically opposed forces pushing and pulling on mortgage rates here at these key levels.  The European component is the obvious force pushing rates down, but less obvious is the underlying structure of the Secondary Mortgage Market providing resistance to moving lower.  The latter is what has prevented rates from getting any lower now and in the past.

That said, if the economic outlook remains fairly dim and if European concerns continue to fuel that “flight-to-safety” demand for long enough, the Secondary Mortgage Market CAN slowly evolve to accommodate lower rates.  It remains to be seen whether or not it will actually happen.  Global economic panic is not our favorite justification for thinking rates will move predictably lower.

Investors in the secondary mortgage market have demonstrated that they tend to feel the same way, having clearly avoided a quick move down into uncharted territory with respect to the “buckets” on the secondary mortgage market.  Read more about “buckets” HERE.  Without a more stable motivation for low interest rates, we’d expect ongoing progress in creating a market for even lower rates to continue to be slow and small.  

Loan Originator Perspective With Rates At All Time Lows

Mike Owens, Partner with HorizonFinancial, Inc.

I always always lock and most of my clients agree it’s the save bet. Why play with fire? Rates always rise quicker than they retreat and there is too much upside risk to worry about an1/8 here or an 1/8 there. Rates are lower than any of us have ever seen so why get greedy?

Ted Rood, Senior Mortgage Consultant, Wintrust

The only thing flying high in the land of PIIGS (Portugal, Italy, Ireland, Greece, and Spain) these days is unrest and their bond yields. Biggest issue with domestic mortgages are that lenders may soon clamp down originations as their pipelines swell by raising their rates/pricing. Borrowers who procrastinate on their loans looking for an extra 1/8th% in rate may be rudely surprised when that happens. “Never try to catch a falling knife” is the Wall Street term for this situation. I’m redoing customers at 4.75% on current loans, while others at 6.0% “think about it”. Guess thinking is why they’re still at 6.0% instead of current 3.75% or so!

Jason Zimmer, Parlay Mortgage & Property

As interest rates continue to remain at all time lows, my advice to all of our borrowers is to lock your loan if you plan on closing within 60 days. Don’t look a gift horse in the mouth.

Today’s BEST-EXECUTION Rates 

• 30YR FIXED -  3.875% edging down to 3.75%
• FHA/VA -3.75%
• 15 YEAR FIXED -  3.125 edging down to 3.00%
• 5 YEAR ARMS -  2.625-3. 25% depending on the lender

Ongoing Lock/Float Considerations 

• Rates and costs continue to operate near all time best levels
• Current levels have experienced increasing resistance in improving much from here
• Rates could easily move higher or lower, but given the nearness to all time lows, there’s generally more risk than reward regarding floating
• But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn’t always mean they’re done improving.
• (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).
  

WASHINGTON – Average rates for 30-year and 15-year fixed mortgages fell to fresh lows this week.

Cheap mortgage rates have made home-buying and refinancing more affordable than ever for those who can qualify.

Mortgage buyer Freddie Mac said Thursday that the average rate on 30-year loans ticked down to 3.83%. That’s the lowest since long-term mortgages began in the 1950s. And it’s below the previous record rate of 3.84% reached last week.

The 15-year mortgage, a popular option for refinancing, dropped to an average 3.05%, also a record. That’s down from last week’s previous record of 3.07%.

The average one-year adjustable interest rate was 2.73% last week, down from 2.7% the previous week.

Low mortgage rates haven’t done much to boost home sales. Rates have been below 4% for all but one week since early December. Yet sales of both previously occupied homes and new homes fell in March.

There have been some positive signs in recent months. January and February made up the best winter for sales of previously occupied homes in five years. And builders are laying plans to construct more homes in 2012 than at any other point in past 3½ years. That suggests some see the housing market slowly starting to turn around.

Still, many would-be buyers can’t qualify for loans or afford higher down payments required by banks.

Home prices in many cities continue to fall. That has made those who can afford to buy uneasy about entering the market. And for those who are willing to brave the troubled market, many have already taken advantage of lower rates — mortgage rates have been below 5% for more than a year now.

Mortgage rates are lower because they tend to track the yield on 10-year Treasury notes. Slower U.S. job growth and uncertainty about how Europe will resolve its debt crisis have led investors to buy more Treasurys, which are considered safe investments. As demand for Treasurys increases, the yield falls, as bond prices and yields move in opposite directions.

To calculate the average rates, Freddie Mac surveys lenders across the country Monday through Wednesday each week.

The average rate does not include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1% of the loan amount.

The average fee for 30-year loans was 0.7 last week, down from 0.8 the previous week. The fee on 15-year loans also was 0.7, unchanged from the previous week.

The fee on one-year adjustable rate mortgages was 0.5, down from 0.6.