Mortgage Balances Up ~ By How Much?

This is a repost from one of my Email drip articles. How much did mortgage balances go up you wonder?

In 2022 - they increased by almost ONE TRILLION, yes, that is not a typo, TRILLION.

Full Article By Angelica Leicht of Housing Wire:

"Americans’ debt balances continued to compound in 2022 as inflation put pressure on budgets and the cost of borrowing increased. Aggregate household debt, which includes all outstanding credit market debt held by consumers, increased by $394 billion in the fourth quarter of 2022 alone, according to the Federal Reserve Bank of New York‘s Q4 Household Debt and Credit report — and mortgage balances were no small part of the equation.

Per the report, mortgage balances drove the uptick in household debt during the fourth quarter, with an increase of $254 billion compared to Q3. This was due, at least in part, to higher mortgage rates resulting in higher monthly home loan payments. Mortgage balances were also up year over year, totaling $11.92 trillion by the end of December.

This marked a total annual increase of nearly $1 trillion for mortgage balances in 2022.

The fourth quarter origination volume also dropped closer to pre-pandemic levels, according to the Fed report, with newly originated mortgages accounting for about $498 billion of the mortgage balance debt during the quarter. That’s a decline of over $130 billion in mortgage originations compared to Q3 2022, when originations stood at $633 billion.

In addition, the share of current debt becoming delinquent increased in the fourth quarter for nearly all debt types, an indicator that household budgets are being stretched to the limit due to issues with inflation, higher borrowing costs and other economic stressors.

“Although historically low unemployment has kept consumer’s financial footing generally strong, stubbornly high  prices and climbing interest rates may be testing some borrowers’ ability to repay their debts,” said Wilbert van der Klaauw, economic research advisor at the New York Fed.

"Homeowners also continued to tap into record-levels of equity in their homes during Q4, which could be an indicator that homeowners are relying more heavily on borrowing to keep up with debt and other financial obligations.

Home equity lines of credit (HELOC) balances increased by $14 billion during the fourth quarter, according to the report, while HELOC limits increased by $32 billion. That’s a significant increase in limits compared to Q3, when HELOC limits were flat.

The uptick in Q4 HELOC balances marks the third consecutive quarterly increase — and the largest uptick in HELOC balances in more than a decade. The total outstanding HELOC balance is now $336 billion, per the report.

While increased HELOC utilization was responsible for at least part of the uptick in the outstanding HELOC balance during Q4, it’s likely that the recent increases to the Fed rate also played a part. Unlike fixed-rate home equity loans, HELOCs normally carry variable interest rates, and, in turn, borrowers’ balances can be impacted by rate fluctuations.

In addition, the number of homeowners who are seriously delinquent on their mortgage payments also increased quarter over quarter. Per the report, mortgage loans considered in “serious delinquency,” meaning the loans are late by 90 days or more, increased to a rate of 0.57%.

But while seriously delinquent mortgages have increased, foreclosures have stayed low. The foreclosure moratoria has been lifted nationwide, but only about 34,000 homeowners had new foreclosure notations on their credit reports in Q4. Still, that rate is a slight uptick from Q3, when about 28,500 homeowners had new foreclosure notations on their credit reports.

The median credit score of borrowers with newly originated mortgages also declined in Q4, per the report. During the fourth quarter, the median credit score of borrowers with newly originated mortgages was 766, down about 22 points from the high of 788 in the first quarter of 2021.

The rise in household debt coincides with the Federal Reserve’s aggressive campaign to lower inflation with a series of increases to the Fed rate. The Fed has raised its benchmark rate multiple times over the last year, with the latest hike of 25 bps occurring in early February.

These rate hikes have had a significant impact on the cost of borrowing and on the housing market in general. As of Feb. 16, mortgage rates hovered near 7% — with further Fed rate hikes anticipated for 2023."

What Us Realtors Need To Know About A Buyers Credit Score

This article was so good, I copied and pasted the entire thing to add to my blog for you guys!

"Even if you understand the basic concepts, the ins and outs of credit can still be daunting. Along with the alphabet soup of acronyms come all-important numbers that change regularly. 

But as we frequently discuss, it’s up to you as an agent to be the expert for your customers. Here’s what you need to know to guide them through credit-related questions that arise in the home-buying process.

Question 1: What is a FICO Score?  

FICO is an abbreviation for the Fair Isaac Corporation, the first company to offer a credit-risk model with a score. It was founded in 1956. It kind of makes you think of a wise old economist or university professor named Fair Isaac, but no, it was named after two guys, Bill Fair and Earl Isaac…an engineer and a mathematician.  

To create scores, FICO uses information provided by one of the three major reporting agencies — Equifax, Experian or TransUnion. But FICO itself is not a credit reporting agency.  

A FICO Score is a three-digit number, between 300 and 850 determined by the information in your credit reports. It helps lenders determine how likely you are to repay a loan. This, in turn, affects how much you can borrow, how long the term of the loan is, and how much it will cost (the interest rate and points).  

You can think of a FICO Score as a summary of your credit report. As a side note, not all credit scores are ‘FICO’ scores, but 90% of lenders use FICO, so it matters the most.  

Question 2: Why do I feel like I can’t easily impact my score?  

It’s not JUST how often you’ve been late or how much you owe on loans and credit cards. There’s an actual algorithm involved. This is part of what’s so frustrating to people trying to improve their credit!  

Question 3: What goes into a score?  

Five main factors go into FICO scores, and they each have a different effect on your score, and they don’t have equal weight. Here’s the breakdown: 

FICO Scores are calculated using many other pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%),  amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).  

Let’s take a deeper dive into those factors:

Payment history (35%)  

The first thing any lender wants to know is whether you’ve paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when extending credit. This is the most important factor in a FICO Score.  

Amounts owed (30%) 

Having credit accounts and owing on them does not necessarily mean you are a higher-risk borrower with a lower FICO Score. However, if you are using a lot of your available credit, this may indicate that you are overextended—and banks can interpret this to mean that you are at a higher risk of default.  

Length of credit history (15%)  

In general, a longer credit history will increase your FICO Scores. However,  even people who haven’t been using credit for long may have high FICO Scores,  depending on how the rest of their credit report looks.  

Your FICO Scores take into account:  

• How long your credit accounts have been established, including the age of your oldest account, the age of your newest account plus the average age of all your accounts
• How long specific credit accounts have been established 
• How long it has been since you used certain accounts

Credit mix (10%)  

FICO Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. You don’t have to have one of each, but having tons of unused credit cards can actually work against you.  

New credit (10%)  

Research shows that opening several credit accounts in a short amount of time represents a greater risk—especially for people who don’t have a long credit history. If you can avoid it, try not to open too many accounts all at the same time.  

This is a common issue buyers create for themselves when they’re in contract or pending. They go get new credit at furniture stores, buy a new car or boat, Home Depot card…etc. Then when the underwriter checks their score two days before closing and it has changed…typically not for the better. Advise your clients to leave their credit alone until after they close!

FICO Scores consider a wide range of information on your credit report. However, they do not consider:  

• Your age 
• Occupation 
• If you’re in a credit repair plan  
• Race 
• Area you live
• Child support obligations  
• Salary 
• Interest rates being charged on existing credit 

Your scores do not count as “consumer-initiated” inquiries — requests you have made for your report, in order to check it, like using: FreeCreditReport.com or experian.com. 

They also do not count “promotional inquiries.” Those are the requests made by lenders in order to make you a “pre-approved” credit offer, or “administrative inquiries.” Some employers request credit information and those requests won’t count against you either.  

Question 4: So how do I “fix” my credit score?

There is no magic way to boost your score. The best way to improve it is to manage it over time and be intentional about it, but here are some methods:  

Steps to improve your FICO Score:  

1. Check your report for errors. Look at all three credit reporting agencies,  since they may be reporting different errors. Getting those reports will not affect your score. Each agency has an online method to dispute incorrect information. Sometimes it’s inaccurate, and sometimes it’s missing, like a tax lien that’s been settled. 
   
2. Read more about disputing errors on your credit report.  
   
3. Next, be sure to pay your bills on time. This makes up 35% of your FICO  Score calculation. Missing payments and making late payments are hard to fix, so this is something to automate with your bank as much as possible. 
   
4. If you’ve already missed payments, make arrangements with your creditors to get current and stay current. Time will heal past credit sins, but only when you have built up a better track record.  
   
5. Credit utilization, as in the amount of debt you’re using, affects your score.  Reduce the amount you owe (you don’t have to pay everything off) and your score will improve. Keep your balances low.  
   
6. It’s better to pay off debt rather than move it around. Owing the same amount but having fewer open accounts can actually lower your scores. Pay off your higher interest rate cards first, and make your minimum payments regularly on your other cards.
   
7. Use Experian ‘Boost’ to get ‘credit’ for your on-time utility payments. This can improve your score by up to 10 points almost immediately.    

Common misconceptions:

1. Paying off an account that’s in collections will not remove it from your report; it stays on your report for up to seven years.  
   
2. Seeking assistance through a legitimate credit counseling organization won’t rebuild your score quickly, but it can help you manage your debt and possibly consolidate, lowering your payments and getting you back on track. Working with such a company does not lower your score.  
   
3. Closing your cards is not a proven strategy to improve your score.  
   
4. Opening up new lines of credit to increase your credit availability can actually hurt your score, not improve it. That’s not a strategy that works.  

The bottom line about credit

When working with your buyer clients, it’s wise to advise them to do the  following, BEFORE they apply for their mortgage:  

• Get their own credit report so they know their scores.  
• Correct any errors and update information that may increase their score.  
• Sign up for Experian Boost.  

Understanding credit gives you an advantage personally, and being able to explain it to your buyers gives you credibility. Knowledge equals confidence, ignorance equals fear. "

Written by: Tim and Julie Harris host a podcast for Realtors called Real Estate Coaching Radio. They’ve been professional real estate coaches for more than 20 years, helping agents succeed in many different market conditions.

SEE? SOOOO GOOD!

What's The Skinny On Getting A Lower Mortgage Rate?

 Well, getting a lower mortgage rate starts with having excellent credit, low debt, good income.

But, there have always been ways to 'buy' down your rate. This is nothing new. There have always been adjustable mortgage rates, nope, nothing new here either.

Nowadays they are calling it the 3-2-1 or some just the 2-1. Depending on the number of years til you hit the actual fixed mortgage rate. See picture below for a brief example of the 3-2-1. 

This BIG difference, right now, is that Sellers are willing to help buyers, more frequently than in previous years, with the costs to get a lower rate. 

Something to listen to when discussing these options with your lender is how much the final payment will be if you do an adjustable type mortgage. AND, if they say 'just refinance it later' you're going to pay for that refi, plus you're betting on rates dropping to a more comfortable amount for you and your family.

Not going to lie, I bought a home on my own for the first time and used a 2nd that was a dicey move. But, I know myself, I paid it off much sooner than necessary, and, that was my plan all along. 

In my humble opinion (IMHO) I'd always suggest doing an initial rate buy down over any type of adjustable. If we're hovering at 6% and that doesn't suit your budget, have your lender work out the costs for buying it down to a comfortable rates. OR, oh my goodness, buy a home that is less expensive. The home you think will be your forever home, that has to be just right from the get-go? It won't be and it doesn't need to be. Things change, styles change, women's' moods change, LOL. Buy what you can afford.

And, lookie here! This is the newest listing my business partner has gotten on market for one of our clients. It's a beauty! Maybe this one is just what you are looking for! SUPER commuter friendly and in excellent condition!

Any questions, about anything, give us a shout!

Lauren Witz Greber ~ (661) 313-5470

Leslie Babikan ~ (661) 312-3669

Easy If You're Not So Good

Between my business partner and I, we have almost 3 decades of helping people buy and sell homes. THREE decades! 

Over the years, I've had people say they want to be a Realtor. They like looking at houses. They like decorating. They are a people person. They want to make some easy money.

Oh My Lord!!! 

So, when I was looking at Instagram this morning, I saw this post from one of my real estate funnies groups. I did laugh when I read it, but it really isn't funny, because it really is true.

Real Estate is NOT an easy job....if you're a good Realtor. Hint, hint....this is why Leslie is my partner.

Being a realtor is hard, really hard. It's not just putting a sign in the ground, it's not just decorating homes, it's not just looking at houses. It's a helluva a lot more. And, while we can sometimes have an easier transaction than the one before....for the most part every single transaction is much harder than the client realizes. 

Good Realtors tell their clients what is going on, for sure. But, GREAT Realtors, carry a lot of stress/weight for their clients without the clients awareness. Why? Because selling or buying a home, one of the biggest assets a person will have in their lifetime, is hard on the client. Very hard.

A good agents job is to make it look easy. Protect their client. Get the best terms all around, whether we are representing a seller or a buyer.  And, if it were an easy job for realsies, you're not doing a good job, you're a bad Realtor.

There are plenty of really great Realtors, there are probably more bad. Leslie & I fall into the first category. Absolutely, 100%.