It’s difficult to get any kind of straight answer out of the less-than-well-oiled machine known as our government, especially when it comes to what’s really going on in the economy.
The mortgage news runs the gamut – one day, home sales are up, the next day, a new line has been drawn in terms of how high a credit score must be to qualify for a mortgage. In the past 24 hours alone, it’s likely you’ve heard something about one or more of these financial factors:
- The new credit scoring matrix means consumers with less than 690 on their combined credit history are wasting their time if they’re considering taking out a mortgage
- Mortgage re-defaults rise again
- Overwhelming student debt keeping some young adults out of the mortgage process
- Investors are the real reason the mortgage industry is improving
These, of course, are just a few of the latest headlines. They’re contradictory, confusing and frankly, it’s just one more reason why Americans are so fed up with the political goings-on, especially when it comes to our money. Are the real estate and mortgage markets really improving? If so, why so many negative headlines? Keep reading as we explore a few of these mortgage news stories.
New Credit Scoring Matrix
We learned this week that two-thirds of Americans have credit ratings that are below 680. That means only one third of Americans can garner approval for mortgages, at least in the traditional sense. That’s not to say that a mortgage is impossible, but it does mean it’s going to cost more and most likely, those wishing to buy a home with scores below 680 will be required to jump through hoops.
They will also be hit with a big down payment requirement. That’s especially challenging considering the recession and ongoing showdowns in Congress; many Americans are simply unable to fork over that kind of cash. How much better can the housing market really be?
Originations are virtually nonexistent for borrowers with credit scores below 620,
said Elizabeth Duke, member of the Board of Governors for the Federal Reserve System.
Mortgage Re-Defaults Up 57%
HAMP, as many know, is the Obama Administration’s efforts of reining in the number of foreclosures so that more Americans are able to keep their homes. Unfortunately, there’s a growing number of re-defaults for those in the program; in fact, the numbers are up more than 50 percent from this time last year. If that’s not perplexing enough, the number of mortgage reductions in the program are still rising as well. Those responsible for ensuring the program serves its purpose agree that the number of re-defaults is alarming. A permanent modification is canceled when the borrower has missed three consecutive monthly payments.
At the end of March, 2012, the number of active modifications in the program was 794,748, while cancelled modifications were at 198,774. Just twelve months later, and even as active modifications are up 9 percent to 866,078, those bailing on the program have soared by 57 percent to 312,561. Need further proof that the program isn’t working? Try this: the increase in permanent mortgage reductions and those who are able to maintain their payments is the lowest it’s been in more than two years.
Still, the government insists HAMP is outperforming the private industry’s similar models and that those who receive assistance in the program have “a high likelihood of long-term success” and are able to avoid foreclosure.
Ah, but the Special Inspector General for the various programs, including HAMP and TARP, disagrees and says the truth is that
re-defaulted HAMP modifications often inflict great harm on already struggling homeowners when any amounts previously modified suddenly come due.
If they’re unable to maintain the contractual obligations, odds are, they end up in deeper debt than they were before entering the program.
Now, there are calls to end the program in its entirety.
Because re-defaults are so harmful to all, Treasury should develop a better understanding of why homeowners re-default, and the characteristics of loans that are more likely to re-default,
said those that oversee the Troubled Asset Relief Program, that helps fund HAMP.
Student Debt Prevents Home Buying Experience
We know that those who already have mortgages are struggling and that those who don’t are concerned, realistically, about qualifying for a mortgage and now, it seems as though college graduates are unable to pursue their own ideas of the American dream, if that means buying a home. A recent survey from the American Institute of CPAs reveals 75 percent of those with student loans are making big sacrifices in order to maintain their payments on their education. Those sacrifices include saving for retirement, getting married and, of course, buying a home.
While all of that is disheartening, the fact that 60 percent of these young people regret financing their education really tells the tale. There was a time when a degree meant something. It showed sacrifice, determination for a better life and even intelligence. These days, though, a college degree is the same as wearing a scarlet letter with a big D – for debt.
Ernie Almonte, chair of the AICPA’s National CPA Financial Literacy Commission, explains it this way,
(Graduates in debt) start out with an anchor that slows their progression toward future goals.
We’ve known for months that student loan debt now eclipses even credit card debt, but that number is growing. That means fewer new home purchases.
These are just a few of the worrisome problems that the country as a whole is facing, especially when it comes to buying our homes. The question is: why are there so many who insist the housing market is improving? We know young adults with college educations aren’t buying homes. We know that those who were in trouble with their ability to make their payments are now struggling, despite new government programs and we know that those whose credit scores are lower than prime aren’t qualifying for mortgages. That pretty much covers the entire American population. So who’s buying houses?