LenderNews by Rob Chrisman
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June 4: Free book on cyber-security; letter on the crisis; Millennials & student debt’s impact on home ownership & housing trends, and vice versa

June 4, 2016

As every lender looks to vendors and/or automation to eek every basis point from every loan (and use it to cover skyrocketing compliance costs), some industries and company look for clever and easily-overlooked solutions. For example, ever wonder why you’ll rarely see a UPS truck sitting in the left-hand turn lane?
 
Cyber security, and protecting companies from hacking, has become a board-issue discussion topic. Jim Deitch, president & CEO of Teraverde, and author of, “Hacked. Screwed. Gone – an A-Z Blueprint to Protect Your Business from Accidental & Malicious Information Security Threats,” sent a note about trends in security issues facing companies. “’HSG’ is a recent book covering lending cybersecurity with the material presented not as a technologist but as a CEO and business leader. The book title comes from the viewpoint of a hacker: ‘I hack you; you’re screwed; I’m gone and you get to clean up the mess.’ 
 
“HSG helps a CEO or senior ‘C’ level executive make sense of cyber security requirements and create a framework of a comprehensive and effective information security program that minimizes the likelihood of unauthorized access to confidential and/or valuable data. The book will help the reader to anticipate that a breach will likely occur or recognize that a breach may have already occurred: to identify and rectify Advanced Persistent Threats that may lurk for months or years in the organization’s system; and most importantly, to effectively educate and train employees to recognize and deter common methods of system compromise.”
 
(Jim has published free cyber resources at www.teraverde.com/HSG, and the book is available on Amazon. Jim will send a complimentary copy of the book to CEO and C level executives at banks and mortgage lenders. Drop Jim an email request for the book to jdeitch@teraverde.com.)
 
Switching gears to the cause and result of the financial crisis, WB writes, “I think it’s important that given the massive media spin and lack of knowledge regarding the cause of the financial crisis that at least we in the industry need to be educated on the issues. I have spent more than one BBQ defending our industry and educating friends and neighbors.
 
“It was certainly caused by both parties but had nothing to do with lack of regulation, it was regulation that caused the problem. It was oversight and regulation that Congress mandated affordable housing initiatives on the GSE’s that created this fiasco. They took a small niche and created a marketplace that the private sector could never have done to that magnitude.
 
“And the idea that lenders and brokers should have denied financing to clients many of which were of a protected class even though they meet the guidelines established to promote affordable housing is ludicrous. If we allow consumers who meet guidelines established by the GSE’s to purchase home we are predatory lenders, if we don’t we are redlining. Give me a break…
 
“Lastly, I think that the whole ‘Bush regulation’ stuff is a myth as well. The current Democratic front-runner is confusing the deregulation that led to the S&L crisis back in the late 80s/early 90s which actually came from Carter not Reagan has many don’t know. The deregulation came from Carter and then when Reagan and Tip closed tax incentive loophole it devalued their worth and started the crash.”
 
From North Dakota David Flohr, the Director of the Homeownership Division of the ND Housing Finance Agency sent, “I thought you might have interest in this article since student loan debt is in the news as an issue for ‘millennials’ buying homesThe program probably can’t be replicated anywhere else because of the unique nature of our state owned bank, but you never know. According to the news media North Dakota is in a recession but it seems we still have jobs here and many of them of the higher paying variety – note the article mentions health care and Microsoft workers.”
 
About 40 million Americans have more than $1.2 trillion in student debt, which is enough money to buy every property listed for sale on Zillow and still have $375 billion left. Student loan debt has impacted the ability of many potential young buyers from purchasing a home due to the inability to save for a down payment and having high debt ratios. Yet the students who successfully graduated from college may not be as adversely affected by student loans when they go to purchase their first home.
 
Zillow found that for a 33-year old family with at least one master’s degree between them and no student debt has a predicted probability of homeownership of 80 percent. If that same family had $50,000 in student debt their predicted probability of homeownership is 75 percent. Similar households with an associate’s degree or no degree and with $50,000 in debt have probability of homeownership rates drop to 57 percent and 33 percent, respectively. On the other hand, those with an associate’s degree with no debt have a predicted probability of homeownership of 73 percent, higher than those with a bachelor’s degree and no debt which has a predicted homeownership probability of 70 percent. Zillow’s findings suggest that there is no clear relationship between student debt and homeownership. To read more about Zillow’s article, click here.
 
In the first three months of this year, the rate was at 63.5%, not seasonally adjusted. That is down from 63.8% in the fourth quarter of 2015, according to estimates published on Thursday by the Commerce Department. That puts it back near its 48-year low of 63.4% in the second quarter of 2015.  At the end of last year, economists had said the homeownership rate appeared to have stabilized and might begin to tick upward after falling for years following the housing crisis. When adjusting for seasonality, the homeownership rate in the first quarter also fell slightly to 63.6% from 63.7% in the fourth quarter of last year.
 
Yes, sure enough the U.S. homeownership rate recently fell again, and is nearing a 48-year low. The drop dashed hopes it had hit bottom, but economists say the stabilization is still good news. While the seasonally adjusted Q1/16 homeownership rate of 63.6% slipped from 63.7% in Q4/15, the long decline in homeownership is over. In Q1/15, the rate was 63.8%, just 0.2 percentage points above where it is now, its smallest January to January decline in six years. Moreover, the most recent decline is occurring despite two-thirds of new households being renters, primarily because most Millennials remain too young to buy.
 
Zillow reports a couple with associate degrees and no debt has a 70% chance of owning a home vs. only a 50% chance if student debt is $50k. Meanwhile, chances of ownership for a couple with a 4Y bachelor’s degree and no debt is about 69.8% vs. 67.7% if the couple had student debt of $30k. So, it appears the higher the education regardless of high student loan debt barely reduces the likelihood of home ownership.
 
While college students have borrowed over $1.2 trillion and seven million students are in default, more debt doesn’t appear to increase default rates. Of students that borrow less than $5,000, 34% default, those that borrow between $5,000 and $10,000 have a 29% likelihood of defaulting, while those who borrow more than $100,000 have an 18% of defaulting. More borrowing means you likely graduated and probably have a graduate degree.
 
Should the older generation give the youngsters money? Apparently they are although in my in-box I found this note from the SF Bay Area: “My grandmother gave me a 1950s Coca Cola thermometer and a cocktail shaker once. That’s about it.”
 
Even with a gift, folks in their 20s and 30s are going to have trouble buying a place without a job. A survey of Millennials worldwide by Deloitte finds that excluding salary the following factors are evaluated when looking at job opportunities: good work and life balance (17%), opportunities to progress or be a leader (13%), flexibility, remote working, flexible hours (11%), sense of meaning from my work (9%), and professional development training programs (8%).
 
Banks should note that Pew Research reports millennials ages 25 to 34 years old living at home with their parents sits at 19% – the highest level in 130 years! Meanwhile, those ages 18 to 34 years old living at home is 32% (vs. 23% back in 2000).
 
Home ownership is as a solid a goal as they come. It is a safe bet that as the Millennial generation ages the percentage owning their own place will increase, and the housing market will benefit from the pent-up demand for housing. Affordability remains a big issue, along with high DTI ratios due to student debt. The homeownership rate for Gen Xers was 59%
 
Millennials may want to buy a home, but they are not saving enough for a down payment. Brent Nyitray observes, “The article assumes a 20% down payment is required, and doesn’t mention FHA loans, which only require 3.5% down. If journalists aren’t aware that you don’t need 20% down, it means the industry still has some more educating to do.”
 
And what about the lack of starter homes? Homebuilders are having a tough time making starter homes work financially – when they are go through the regulatory costs of building a house, and the trouble of finding labor, why not build as big as they can?
 
Increased regulatory and compliance costs, mandated open space, lower density, higher land prices, and fees imposed by counties and cities are all combining to make affordable starter homes impossible to build. Indeed, the number of starter homes is at a historical low and falling.
 
"When you start with a high land basis, it’s very hard to end up with a purchase price that the first-time buyer finds affordable," said Stuart Miller, CEO of Miami-based Lennar. "No. 1, you see it in just the pure requirements. Those requirements can be a very lengthy list of things you maybe wouldn’t have seen 10, 15, 20 years ago. But you’re also seeing it in fees that counties and cities impose on new home construction. Fees can be anywhere from $50,000 to $100,000 per home to build," said Taylor Morrison’s Bodem. "Things like that ultimately get passed on to the consumer and the price of housing. That’s one reason why you see the cost of housing so expensive, especially here in Southern California."
 
And when they do pull the trigger to buy a house, how are they going to do it? Jamie Palmeroni with Text100 for Xerox sent, “With more millennials in the mortgage market and increasing consumer demand for digital, interactive services, today’s paper-intensive mortgage process can fall short of their expectations. However, the mortgage industry’s latest battle to remain compliant is expediting digital adoption and helping borrowers deal with less paper in 2016.
 
“The 11th annual Xerox Path to Paperless Survey finds that adoption of eDelivery for borrower documents jumped 15 percent year-over-year. Plus, an overwhelming 92 percent of mortgage professionals expect to increase their use of eDelivery as a result of the TILA-RESPA Integrated Disclosures rule. Another advancement toward digital experiences: the number of respondents using mobile devices for business transactions has doubled. Please see more details in the news release and attached infographic, showing how regulation and homebuyers are transforming the mortgage process.”
 
 
DO NOT MESS WITH APPRAISERS
A lawyer and an appraiser are sitting next to each other on a long flight. The lawyer is thinking that appraisers are so dumb that he could “put one over” on them easily. So, the lawyer asks if the appraiser would like to play a fun game. The appraiser is tired and just wants to take a nap,
The lawyer persists, saying that the game is a lot of fun.
"I ask you a question, and if you don’t know the answer, you pay me only $5. Then you ask me one, and if I don’t know the answer, I will pay you $500," he says.
This catches the appraiser’s attention and, to keep the lawyer quiet, he agrees to play the game. The lawyer asks the first question.
"What’s the distance from the Earth to the Moon?"
The appraiser doesn’t say a word, but reaches into his pocket, pulls out a five-dollar bill, and hands it to the lawyer.
Now, it’s the appraiser’s turn.
He asks the lawyer, "What goes up a hill with three legs, and comes down with four?" The lawyer uses his laptop to search all references he can find on the Net. He sends E-mails to all the smart friends he knows; all to no avail.
After an hour of searching, he finally gives up. He wakes the appraiser and hands him $500. The appraiser pockets the $500 and goes right back to sleep.
The lawyer is going nuts not knowing the answer. He wakes the appraiser up and asks, “Well, so what goes up a hill with three legs and comes down with four?”
The appraiser reaches into his pocket, hands the lawyer $5.00, and goes back to sleep.
 
 
If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site. The current blog is, “The Fed’s QE: Help or Hindrance to Lending?” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
Rob
 
(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are over 300 mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)