Marketing to Millennials 101

“Millennials the key to a stronger housing recovery.” That’s the headline on the press release of the Harvard Research Center’s latest “State of the Nation’s Housing” report for 2014. Unfortunately, unlocking that key is going to be very difficult for home sellers and mortgage lenders.

“Tight credit, still elevated unemployment, and mounting student loan debt among young

Americans are moderating growth and keeping millennials and other first-time homebuyers out of the market,” the Harvard report says. “Young Americans, saddled with higher-than-ever student loan debt and falling incomes, continue to live with their parents. Indeed, some 2.1 million more adults in their 20s lived with their parents last year, and student loan balances increased by $114 billion.”

“Still,” the report says hopefully, “given the sheer volume of young adults coming of age, the number of households in their 30s should increase by 2.7 million over the coming decade, which should boost demand for new housing. Ultimately, the large millennial generation will make their presence felt in the owner-occupied market,” says Daniel McCue, the research manager of the Joint Center.

I agree. The Millennial generation will, eventually, follow their parents and grandparents as homebuyers, although maybe not to the same extent, plus it’s going to take them a while longer than previous generations. But there are just too many tax and wealth-building advantages to homeownership to ignore.

Nevertheless, there are obstacles to preaching the gospel of homeownership to these prospective first-time homebuyers, and not just because of that student loan thing. Mortgage lenders will have to figure out a way to overcome them.

According to its latest consumer survey with millennial home buyers, Trulia, a leading online real estate marketplace, found that even though their finances are the biggest barrier to home ownership, many young people aren’t prepared to give up life’s little luxuries to help save for their down payment.

For example, nearly half (45%) said they wouldn’t give up their smartphones, 20% won’t give up cable television, and 15% would insist on keeping their Netflix subscriptions.

Instead, they plan to go to the Bank of Mom and Dad (or Grandma and Grandpa) for help. That compares to just 37% who would work a second job in order to save up.

The Trulia survey found another interesting factoid: Nearly half don’t know how much money they need for a down payment. Among the majority of those that do know, nearly two in five would put down less than 10% – or less than half of what many lenders today will demand.

That response indicates that one of the most important things mortgage lenders need in their marketing and advertising strategies in reaching these prospective first-time homebuyers is: Education. About the homebuying process, saving for a down payment, debt management, maintaining a high credit score, etc.

Reaching out to this next wave of first-time homebuyers then – and getting them to respond – will take completely different skills, products, communications methods and messages than other customers require if you are to compete successfully.

Here are some of the things you should think about before you approach this challenging, but critical, homebuying demographic:

>> Educate, don’t sell: Millennials have a particular aversion to being sold. Keep it subtle. Blatant advertisements are a big turnoff. Instead, teach instead of trying to sell. Many lenders have found a lot of success with first-time homebuyer seminars or by offering advisory services, such as the basics of home buying. But you’ll have to be patient. The payoff won’t be immediate, but that’s better than no payoff at all.

>> Evoke trust: The reason why Millennials don’t respond to advertising is because they don’t trust it, or the company or person sponsoring it. They put much more value on what others have to say about you than what you have to say about yourself.  That’s why many companies have found success on social media sites like Facebook. Let your satisfied customers tell others how wonderful you are. But it doesn’t stop there. You have to rebuild that trust with each and every customer, including repeat customers.

>> Be flexible. More than previous generations, Millennials want to retain their flexibility, such as being able to move from job to job and city to city.  That’s why renting is so attractive to many of them. They especially don’t want to be locked into a 30-year mortgage. You’ll need to come up with new loan products, such as more adjustable-rate loans, that don’t “feel” like long-term commitments. New loan products also need to take into consideration the special needs – that student loan thing again – this generation has.

Lenders will have to adapt to these new realities if they hope to succeed with this next generation of homebuyers. After all, they’re the only future we have.

About The Author


Wells’ HELOC Revamp is Long Overdue

Early this month the Wall Street Journal broke the story that Wells Fargo last November had begun requiring most of its customers to start paying principal – not just interest – on their home equity lines of credit (HELOCs).

This prompts three questions: First, what took the financial press so long to find this out? Second, what took Wells, the biggest residential mortgage and home equity lender in the country, so long to do this?

And third, why did the bank feel that it had to keep such a good and long overdue idea such a big secret?

The collapse of the housing bubble was devastating to the HELOC business, previously a fast-growing, low-risk, highly profitable business for the vast majority of retail banks and credit unions who offer the product. But since the peak year of 2009, lines of credit outstanding have dropped 26%, from $714 billion to $526 billion in the first quarter of this year, according to the Federal Reserve.

Even worse, lenders have lost billions on soured HELOCs they’ve had to write off. The delinquency rate on HELOCs stood at 3.37% at the end of the first quarter, down from 4.69% at the peak in early 2012 but still more than 10 times the 0.37% rate in 2003, before the housing bubble burst.

HELOCs used to be one of the safest consumer loans banks made, with delinquency rates well below 1% industry wide. But that figure skyrocketed during the recession as lenders made loans in anticipation of continued high home prices.

That was the same bet millions of homeowners made, taking out bigger and bigger HELOCs to build swimming pools, borrow more on their credit cards, and make additions to their homes they didn’t really need. The banks should have known better, of course, but they didn’t.

Until Wells made its historic move, the vast majority of HELOC borrowers have only been required to make interest-only payments for the first 10 years, during which time they can continue to draw down their lines, up to their maximum. Starting in year 11, but only then, borrowers are required to start making principal payments, too. Before then, of course, borrowers had the option of making principal payments.

When the housing market crashed, too many homeowners couldn’t make those higher principal payments.

It’s not clear yet how many lenders will follow Wells’ lead, although two of the banks’ biggest national competitors, Bank of America and J.P. Morgan Chase, have said they’re considering it. But other smaller lenders say they will continue to offer I-O HELOCs for the first 10 years to differentiate themselves from Wells.

For example, Navy Federal Credit Union, the nation’s largest credit union, says it has no plans to change or eliminate its I-O options on both its fixed-rate home equity loans and HELOCs, although it acknowledges that only a “small percentage” of its members choose interest-only loans.

It’s not like Wells has priced itself out of the market by demanding principal payments from day one instead of 10 years out. Typical monthly payments for most Wells HELOC customers will rise, of course, but not as much as you might think. For example, the interest-only payment on a $30,000 HELOC at the current 4.875% APR would be about $121. A fully amortizing payment including principal would be $158.83, a difference of less than $40 a month.

However, by doing so, the homeowner will pay off his loan and build equity in his home faster, or free up more equity to borrow against.

It’s clearly a more borrower- as well as lender-friendly idea. You have to wonder why it’s taken this long for a lender to make the move.

Yet while Wells is making this more responsible change, both for itself and its customers, a growing number of lenders are once again starting to make HELOCs up to 100% of the value of the property, one of the main reasons for the collapse of the housing bubble and the demise of the HELOC product.

Proving once again: Too many people in the mortgage business just never learn from their mistakes. It’s good to know that at least one lender has, if a few years late.

About The Author


My Mortgage Experience, Part 2

A few columns back I wrote that my wife and I were in the home stretch of refinancing our mortgage through the HARP program after several years of being told we weren’t eligible. Well, I’m happy to report that we closed on the loan a couple of weeks ago and now will be able to pay off our mortgage in half the time we would have been able to do under our old loan, saving tens of thousands of dollars in the process.

Unfortunately, we could have saved a whole lot more if we had been able to refi a few years ago, when HARP was first rolled out. If only I knew then what I know now.

In that earlier column, I noted that “one of the reasons we had trouble knowing if we were eligible for HARP was because it was difficult to know for sure if Fannie or Freddie owned the loan in the first place. You can use Fannie or Freddie’s website to check, but unless your address matches up exactly with theirs, you won’t get an accurate answer.”

It turns out I didn’t know the half of it. I had no idea just what a big mess an incorrect address really is and what lengths you have to go through to fix it.

While calling Sports Illustrated or Ducks Unlimited to correct your address takes one telephone call to a customer service rep, Fannie Mae requires a full “support team” to do this. And this “support team” meets all of once a month.

If you live in a condominium, like I do, or a co-op with a unit or apartment number, you’re much more likely to run into this predicament. And that can “wreak havoc in terms of refinancing or purchasing a home,” said Paul Anastos, president of Mortgage Master Inc. in Walpole, MA, where I got my refi. “It was a pretty big deal getting it changed so we could even do it.”

“Something as simple as a condo being listed as Unit 512 rather than #512 can result in the system identifying this as a loan that is ineligible for HARP,” says Patrick Ruffner, branch manager for Guaranteed Rate in Chicago. “While an instance like that is an easy one to correct by updating the file internally with the lender refinancing the loan, there are instances that are more difficult to solve.” Like mine, apparently.

“The biggest problem is these updates are processed once a month at the end of the month,” Ruffner says. “The borrower is stuck in limbo until Fannie/Freddie have updated their systems. Therefore, the borrower will be unable to move forward with their refinance until this has been corrected. Depending on when the current servicer asks the agencies to update the address, this can take weeks up to months to be corrected.”

“If it is within the last week of the month, they may push this correction to the following month, thus delaying the process further. This leads to a borrower that is unable to lock in a rate and move forward with the refinance until it has been updated in the relevant system. In a time when interest rates are volatile and every day could result in an increase of those rates, this can put the borrower’s savings in peril.”

“There definitely isn’t a sense of urgency,” said Anastos. “They make it much more difficult than they need to.”

Fannie Mae told me repeatedly that it didn’t own my loan, although my mortgage servicer insisted (correctly) that it did. I put every variation of my address I could think of into Fannie’s search engine and repeatedly came up with nothing. I even called Fannie by phone and spoke to a human being who told me they didn’t own the loan. It turns out that the address Fannie had for me wasn’t even close to the one the Post Office or my servicer recognizes.

(This, of course, begs the question: If Fannie Mae didn’t own my loan, where had my servicer been sending my principal and interest payments to every month for the past seven years?)

I called and emailed Fannie Mae at least four times to get a response for this column but never got one. For its part, Freddie Mac says it can make a “post-funded data correction,” as it’s called, in six to eight days, at any time of the month, provided the servicer has the proper documentation.

As Ruffner notes, a simple problem like this costs real money. I’d been trying to refi through HARP ever since it was first introduced in 2009. So I’ve been paying about twice the market rate for my loan over the past four years, which I assume cost me in the tens of thousands of dollars in extra interest.

Anastos brought up another point, which should make Fannie and Freddie and their lender partners stand up and take notice.

“A dishonest person could have tried to make a case that they shouldn’t have to repay the mortgage,” he said. Indeed, many borrowers faced with foreclosure tried that tactic, and some were successful.

I’m too honest a person to have attempted that. But I was sure angry enough to think about it.

Isn’t it reassuring to know that the same government that can’t fix a simple thing like your address now wants to fix your health insurance?

About The Author


What Kind Of Industry Do We Want?

*What Kind Of Industry Do We Want?*
**By George Yacik**

NEW-GeorgeY***The recent news that Fannie Mae and Freddie Mac have nearly paid back their bailout debt to the U.S. Treasury after just five years and will soon be paying a positive return is certainly great news for taxpayers. It’s also a stark reminder of just how profitable the mortgage business can be if done right, i.e., when lenders make safe, secure, fully documented loans, like they have been doing for much of the past five years, in direct opposition to what they had been doing in the 10 years or so before that.

****Unfortunately, that idea goes against the desire of many in the industry to make as many loans as possible, which almost always means a lot more than the business can responsibly handle.

****It seems we either have to have a safe, sustainable mortgage market with a huge government presence, or we have a fast growing market, but we can’t seem to have both.

****The industry has to decide if it wants to make good, smart, profitable loans that consumers can pay back, or lots of loans, many of which will eventually go bad.

****This has always been the dilemma in consumer lending: either the marketing people have the upper hand, or the credit quality people do. Since the meltdown, the credit quality people have had the advantage, and things have improved measurably, but it’s been at the expense of growth.

****We have to decide which is more important.

****Going forward, the mortgage and housing markets don’t seem poised for growth in any event, given future demographics and the prospects for the economy. So the only way we’ll be able to grow is through dangerous, artificial means, like lowering lending standards and raising loan-to-value ratios. But we’ve already seen how that has played out.

****Lenders can get away with reckless lending for a while, sometimes a long while, but eventually it catches up, and the results are usually ugly.

****I’m rooting for the CFPB and the other mortgage regulators to make sure that doesn’t happen again. It will benefit all of us in the long run.

****Therefore, people and companies in the business are going to have to decide if they want to stay in an industry that will grow slowly, but they can make a nice, steady if boring income from making good, solid loans. That’s not for everybody. If not, they probably need to find another line of work. That will leave a lot of business for those who remain.

****Recent statistics on the mortgage and home-buying markets point to an increasingly restrictive market. It also points to a solid, financially sound industry, like it used to be before the recklessness of subprime mortgages and high LTV lending.

****The National Association of Realtors recently came out with its annual Profile of Home Buyers and Sellers report. It found that the overall market share of single buyers declined from 32% in 2010 to 25% in both 2012 and 2013.

****I say that’s a positive sign for mortgage credit. The growth in the number of single buyers was one of the biggest reasons why credit quality deteriorated so badly during the mortgage bubble.

****Similarly, the home ownership rate has dropped to the levels of the mid-1990s. That, too, should be a positive sign, not a negative. Some people are just not cut out for home ownership.

****I’m sorry if this sounds insensitive, but the industry is going to have to learn whether or not it wants to be a growth industry or a safe and sound one, a high-flyer or a utility. The past has proven that it can’t be both.

****That’s why this idea of getting rid of Fannie and Freddie is so ludicrous. Who are we kidding? The U.S. mortgage market could not survive a minute without federal assistance any more than the banking industry could survive without the FDIC.

****That being  the case, the industry is just going to have to accept the idea of a slow growing, but safe, profitable and sustainable, business. Would that be so bad?

Are High Home Prices Bad For The Economy?

*Are High Home Prices Bad For The Economy?*
**By George Yacik**

NEW-GeorgeY***One of the standard chestnuts of U.S. economic policy is that high home prices are good for the economy. Nobody embraces that thinking more than the Federal Reserve, which at its past two monetary policy meetings decided against tapering its quantitative easing bond purchases –  nearly half of which include mortgage-backed securities – to a large degree because it was worried that any rise in interest rates might derail the nascent housing recovery. Pumping more money into the market, so the thinking goes, helps home prices and thus the larger economy.

****But is the Fed doing the right thing by trying to boost home prices, at least in terms of growing the economy? Is there really any factual basis for this way of thinking?

****A new paper from economists at Southern Methodist University and the University of Pennsylvania argues that this long-held approach may actually be wrong-headed. Rising home prices actually hurt the economy by decreasing lending to more economically beneficial areas, specifically commercial businesses, they argue.

****The paper, entitled “Do Asset Price Bubbles Have Negative Real Effects?” argues that high home prices, rather than benefiting the economy at large, actually hurt it by disincenting lenders from making loans in other economic sectors.

****The paper notes that the negative effects of asset-price declines have been well studied in great detail, including a 1983 paper by Ben Bernanke (yes, that Ben Bernanke).

****But, the SMU and Penn economists say, “Our paper finds that even while asset bubbles are on the rise, there can be negative effects for firms and the economy. To the best of our knowledge, our paper is the first one to provide empirical evidence of a negative effect of asset-price increases on borrowing and investments.”

****“In general, increases in housing prices in a bank’s deposit base lead banks to decrease commercial lending,” the paper contends.

****The academics found that in “areas with high housing appreciation, banks increase the amount of mortgage lending and decrease the amount of commercial lending as a fraction of their total assets. This allocation results in (commercial) firms receiving reduced loan amounts, paying higher interest rates, maintaining lower leverage ratios, and reducing investment. If anything, firms should have more, instead of fewer, investment opportunities in the face of strong housing returns and economic growth.”

****“These results suggest that when asset prices increase in one sector (such as the housing market), banks may respond by reallocating capital away from other sectors (such as commercial lending) towards the supported sectors.”

****The conventional thinking in the U.S. is that by “improving asset prices, and specifically housing assets, consumers will increase demand, which will lead to increased business investment and hiring,” the economists write. “However, these arguments are leaving out the potentially negative effect of asset-price increases. An increase in activity and asset value in one sector, such as mortgage lending, may crowd out resources from other sectors and activities, such as borrowing and investment by commercial firms. The focus on increasing asset prices, and in particular real-estate prices, may be wrong as the potential harm to commercial firms’ borrowing and investment will hurt the economy as a whole.”

****“Our results imply that there may be room to scale back the actions to support and improve real-estate (and other asset) prices, as those attempts may lead to a crowding out effect for productive investments by commercial firms,” the authors conclude.

****Even if the authors are correct, I doubt the housing and mortgage lending industries, and the other industries that are heavily dependent on them, need to worry about any imminent change in government policy. Too many Americans – myself included – are too wedded to the existing state of affairs to want a change – any more than we can expect or want any major changes to Medicare or Social Security. Besides, the thinking that high home prices are good for the economy is so engrained in conventional economic thinking that we probably shouldn’t expect much change.

****But this paper is certainly food for thought.

****The Fed had a big hand in creating the housing bubble in the early 2000s through its low interest rate policies. Maybe we should be worried that it’s doing so again. We all know what happened the first time.

Mortgage Lenders Can Help Bridge the Retirement Gap

*Mortgage Lenders Can Help Bridge The Retirement Gap*
**By George Yacik**

NEW-GeorgeY***The U.S. pension system recently fell to 11th place among 20 countries with major retirement systems, the first the first time we did not rank among the top 10 in Mercer’s annual global retirement rankings. The U.S. took “the biggest hit” in the company’s adequacy metric, according to Australia-based Mercer.

****Of course, the Mercer report is hardly the first to note how seriously underfunded Americans’ retirement accounts are. Indeed, just last month the BlackRock investment firm came out with a report about America’s “retirement funding gap.” The BlackRock report in turn cited a Boston College study measuring that gap at $6.6 trillion – and that was three years ago – as well as another study by the Employee Benefit Research Institute that found that less than 60% of American workers are saving for retirement.

****While I don’t doubt the accuracy of these reports, the problem I have with them is that they almost never mention the other half of the American consumer’s balance sheet, and that’s the liabilities side. And guess what constitutes the vast majority of Americans’ liabilities? Mortgage debt, which according to the Federal Reserve still totals more than $9.3 trillion.

****Too many retirement studies and financial plans focus on how much money you need to save and earn on your investments, but they almost never talk about the need to reduce your expenses, which can have just as big an impact – if not more – on your budget and quality of life as how much income you have. And the biggest place to start is the mortgage.

****What’s particularly frightening is that a growing percentage of people either approaching retirement or already in it are still carrying a mortgage, which for most people is their largest monthly expense.

****A 2012 study by AARP found that the percentage of people with mortgage debt as they age and the amount they owe has increased steadily over the past 20 years, particularly among the oldest group.

****Among those 55 to 64, more than half had a mortgage in 2010. That’s up from 37% in 1989. More than 40% of those 65 to 74 had a mortgage, nearly double the number from 1989. Nearly a quarter of those 75 or older still have a mortgage, compared to less than 7% in 1989.

****Moreover, the amount of debt these people owe has exploded. According to AARP, the median mortgage debt of those 55 to 64 nearly tripled between 1989 and 2010, to $97,000 from less than $34,000. Among those 65 to 74, median mortgage debt more than quadrupled, to $70,000 from $15,400, while among those 75+ it jumped to $52,000 from less than $12,000.

****With numbers like that, it would seem to me that there is a big role for the mortgage business to play in helping to bridge America’s retirement funding gap, especially for an industry that is starved for new business and could use a good dose of positive PR.

****At the very least, mortgage lenders could come up with a marketing campaign to bring this to people’s attention, perhaps by providing tips on how people can pay down their mortgages faster. It’s a lot easier, and it would have a bigger impact, to pay down your mortgage rather than save for retirement, plus it’s risk free, unlike putting your money in stocks or bonds.

****I certainly understand why some people in the mortgage industry don’t like the idea of advising customers to pay off their loans faster. But there are also huge new business opportunities.

****Except for reverse mortgages, which haven’t exactly set the world on fire, lenders have pretty much written off the idea of lending to older homeowners. I think that’s short-sighted.

****The mortgage business needs to come up with new loan products to serve this market, and many of them can be helped. While a lot of seniors have a lot of mortgage debt, as the AARP says, they also have a lot of home equity. According to the National Reverse Mortgage Lenders Association, Americans age 62 and older own home equity of $3.25 trillion, or more than a third of total U.S. homeowner equity.

****Surely the industry’s creative minds can come up with some new credit products to help close the retirement gap from the liability side. Millions of older Americans would qualify for first mortgage refinances and home equity loans to help them reduce their monthly debt payments. It’s a big opportunity waiting for a solution.

My Mortgage Experience

*My Mortgage Experience*
**By George Yacik**

NEW-GeorgeY***As I’ve chronicled before in this space, my wife and I have been trying to refinance our high-rate mortgage for several years. We’re ineligible for HARP – or at least been told we are – and since we’re under water or at best nose level, HARP has been pretty much our only option, since paying private mortgage insurance makes a refi financially unfeasible.

****It now appears that we’ve finally found a lender, and a loan (maybe under HARP!), to make it happen, and we hope to close sometime in October. I’m certainly not taking it as a slam dunk, having been disappointed lots of times before, so I’m not getting overly excited. Let’s say I have the healthy skepticism of a journalist.

****Going through this process, I’ve seen first-hand some of the problems facing the mortgage business. While a lot of the issues are beyond the ability of the industry and individual companies to solve, I do believe that many of the industry’s problems are of its own making, and, unfortunately, it doesn’t seem to be doing as much as it can to solve them.

****Lazy loan officers. Perhaps I just called the wrong half a dozen or so, but I was genuinely surprised how little effort the loan officers I called were willing to put in to try to help us refinance. The LOs at the bank that services our current loan were particularly unhelpful; I had expected a lot more of them than anybody else, yet got even less.

****When they found that we might not be HARP eligible and that a more complicated loan was necessary, most of the LOs seemed to lose interest. I never heard from them again.

****Can you imagine walking into a showroom with an excellent credit score and eager to buy and the salesman letting you leave without a new car?

****Loan servicing doesn’t necessarily mean “service.” My wife and I tried on numerous occasions to get the bank that services our loan to help us refinance, but they kept saying they couldn’t do anything except offer us a new refinance loan (see above).

****If it had wanted to, this bank (one of the largest in the country) could have written a new refi loan and put it in their portfolio, bypassing both Fannie and Freddie, but they wouldn’t – I’m not sure the idea even occurred to them. My wife and I both have FICO scores well above 800 and have never been late or missed a payment of any kind in our lives. We also have several credit card accounts with this same bank. They would know firsthand if we were reliable borrowers or not.

****The only way they would or could help, they said, was if we had actually defaulted on the loan. Believe me, I was tempted, although I got over it.

****I find it hard to believe that our current servicer or another lender couldn’t find a loan for us that was safe for them. I had heard that other, smaller banks in my area had rewritten loans or offered new loans as a service to their good, existing customers who were stuck with high-rate loans, but not my bank.

****Guess which bank I’ll never go to again?

****Where do you live exactly? One of the reasons we had trouble knowing for sure if we were eligible for HARP was because it was difficult to know for sure if Fannie or Freddie owned the loan in the first place.

****You can use Fannie or Freddie’s website to check, but unless your address matches up exactly with theirs, you won’t get an accurate answer. We live in a condo with a unit number, which can create some matching issues, but I still don’t understand why, in 2013, the $100 GPS in my car can direct me to the loneliest place on earth, but the largest companies in the U.S. can’t tell the difference between 123A Elm Street and 123 Elm Street Unit A.

****This has been a problem for decades yet we seem no closer to a solution.

****Paperwork, lots and lots of paperwork. My wife and I had to sign more than 25 paper documents – and that was just for the loan application. I’m told we’ll have to sign the exact same documents all over again at the closing, plus some more. Things sure have changed since we bought our home in 2006, but the trees are no safer now than they were then.

****I’m happy to say that my wife and I finally found a lender that has been willing to make a concerted effort to help us refinance and we’re currently on the road to closing. However, we’re still at least a few weeks away, and I don’t want to jinx it. Wish us luck.

Whither The American Dream?

*Whither The American Dream?*
**By George Yacik**

NEW-GeorgeY***The U.S. homeownership rate recently has been holding steady at 65%, putting it at its lowest level since the third quarter of 1995. That’s down sharply from the peak of 69.2% reached in the first quarter of 2009. But while some people in the housing and mortgage industry believe – or fervently hope – that the drop in homeownership is a temporary reaction to the Great Recession and the bursting of the mortgage bubble, it could be that a broad, long-term trend is underway among consumers, away from the “American Dream” of owning your own home. The current home ownership rate may therefore be as high as we can reasonably expect it to get, maybe for a long time to come.

****A recent poll conducted by GFK Custom Research for found that most respondents (27.9%) said the American Dream is retiring financially secure at 65, with being debt-free coming in second with 23%. Only 18.2% picked owning a home.

****In another section of the survey, home ownership came in even worse. When consumers were asked what financial goals were most important to themright now, being free of debt won by a landslide, with more than a third of the vote.The runners-up weren’t even close; buying a home came in a distant fifth, with less than 7%.

****“The poll underscores something I have long suspected — there’s a great deal of nostalgia for a promise that increasingly and tragically no longer exists,” says’s co-founder and chairman Adam Levin. “Once upon a time, the American Dream was owning a home full of thriving, college-bound kids, two cars and little debt. Now it appears that for many Americans, the American Dream has changed.”

****A survey released last April by the MacArthur Foundation found that consumers have a more favorable attitude towards renting. The survey, entitled How Housing Matters: Americans’ Attitudes Transformed by the Housing Crisis & Changing Lifestyles, found that renting was becoming a much more acceptable option for consumers than it used to be.

****While seven in 10 renters said they aspire to own their own home one day – not too far off the current homeownership rate the overall appeal of renting versus owning is changing.Fifty-seven percent of adults said they believe that “buying has become less appealing,” while nearly the same percentage (54%), believes that “renting has become more appealing” than it was before.

****In addition, even among people who already own their own homes, renting is becoming more desirable. Nearly half (45%) of current owners said they can see themselves renting at some point in the future.

****“The public is recognizing that owning is not the only acceptable option, and the sense that renting is somehow undesirable appears to be fading,” the study said.

****“I see more and more people electing to rent their homes rather than buy,” Elle Kaplan, CEO and founding partner of Lexion Capital Management LLC in New York, told me. “The mortgage crisis changed the American Dream. We have shifted away from the idea that homeownership is a universal goal and benchmark of success. Many Americans today are deciding that owning a home would be a significant liability. Renting provides flexibility and the chance to have money invested in the markets, as opposed to a concentrated investment in a home.”

****Certainly, the record high ownership levels in the early 2000s were artificially inflated by government policies that encouraged practically everyone to buy a home, whether they could afford it or not, so we shouldn’t be surprised that the homeownership rate has moved back toward more historical, realistic levels. That in itself will sharply reduce the size of the market and growth opportunities.

****But the larger question is how badly the aftermath of the mortgage bubble has damaged consumer attitudes toward homeownership. That could take a long time before it changes, if it ever does.

****No doubt the data and survey results I’ve cited are overly pessimistic, and as the Great Recession recedes further and further in our rearview mirror and the memory of the mortgage bubble fades, attitudes will soften. But neither should they be taken lightly.

****Too many people in the mortgage and housing business, I think, take for granted that the American Dream still means owning your own home just as much as it used to. To more and more people, it doesn’t.

****The mortgage industry needs to get out there and promote the benefits of home ownership – and demonstrate how it can help consumers – if it hopes to get people interested in buying homes again. It’s not too early to start.

‘Monkeynomics’ and Mortgages

*’Monkeynomics’ And Mortgages*
**By George Yacik**

NEW-GeorgeY***My wife is going to college at night to earn a degree in psychology. For one of her classes, she had to watch the YouTube video of a lecture from a college professor about why otherwise intelligent humans repeatedly make the same financial mistakes over and over again.

****The professor and her students did an experiment in which they trained capuchin monkeys to use currency to “buy” treats. What they found was that the monkeys made the exact same mistakes people make when it comes to finances, and make the same mistakes over and over again even when they’re incented not to.

****I happened to be doing some reading about the last 30 years of the U.S. residential mortgage business, and I was struck by how it mirrored the monkey experiment in the video.

****When I thought about it, I couldn’t think of another major American industry that repeatedly makes the same mistakes over and over again. Not only that, but each subsequent mistake is even more colossal than the previous episode.

****Case in point: the subprime mortgage collapse of 2007. We all know how it happened and what the result was. Yet, less than 10 years before that, there was another subprime mortgage collapse.

****The only difference was that in the first incident, in 1998, subprime was called “B/C”, and the industry fallout wasn’t nearly as bad as it was the next time. In 1998, many B/C lenders went under (remember FirstPlus, Money Store and Cityscape Mortgage, to name a few?), but the rest of the industry continued to thrive.

****That was followed by the cataclysm of 2007, which destroyed the whole business, and nearly the U.S. and global economies with it.

****Yet the root cause of both catastrophes was pretty much the same thing. In 1994, the industry was recovering from the end of another refinance boom, and lenders were looking for new volume to replace the refi bust. So they embraced B/C and high loan-to-value lending (remember the 125% first mortgage?). Less than five years later, many of the largest lenders in the business were toast, although the industry at large managed to survive.

****In 2004, lenders were recovering from an even bigger party, the 2002-3 refi boom, the industry’s biggest ever, with more than $5 trillion in originations in those two years alone.

****How to make up for that volume when it started to contract? Not only did the industry embrace B/C lending, now rechristened subprime (and after that, “nonprime”), but it did so with a vengeance. Not just subprime, but interest-only loans, stated-income loans, payment option loans, piggyback lending, two-year ARMs, 40-year mortgages – anything to shoehorn borrowers into loans that everyone knew they couldn’t pay.

****A monkey could have seen a disaster coming, yet few humans did, or at least did nothing about it.

****That’s why I ‘m getting a little nervous from some of the stories I’ve been reading in the mortgage press lately.

****One story noted that at least one lender in Southern California is starting to make stated income (i.e. “liar loans”) again. Another story talked about the return of adjustable-rate mortgages now that long-term interest rates have started to rise.  Still another noted that federal financial regulators are starting to reconsider the 20% down payment requirement on qualified mortgage loans because of protests from the industry, which really wants 5%, certainly no higher than 10%.

****Other stories have noted that buyback demands from Fannie and Freddie have started to abate recently. And of course home prices are rising by double digits (never mind they’re still worth 30% less than six years ago).

****The message of all this to the mortgage business? The crisis is over! Let’s start lending recklessly again!

****My first thought after I read these stories was: Here we go again.

****As those capuchin monkeys would probably ask: Don’t those humans ever learn?

Let’s Keep the Taper in Perspective

*Let’s Keep The Taper In Perspective*
**By George Yacik**

NEW-GeorgeY***Billions of dollars have been gained and lost in the past several months by investors betting on when the Federal Reserve would begin tapering its “quantitative easing” program, which has kept stocks prices high and interest rates at historically low levels for well over a year. The slightest inkling of the Fed pulling back on its $85 billion a month purchases of Treasury and mortgages has raised interest rates on mortgages to their highest point in over two years.

****Now it looks like taper time is finally upon us. In the past two weeks, the presidents of no less than four regional Federal Reserve banks said that the Fed was likely to start cutting back on its purchases as soon as next month. The trigger for tapering was supposedly the decrease in the unemployment rate in July to 7.4%.

****While it’s still not clear if the Fed really will start tapering in September or not, and if so, by how much, all signals point to it beginning in the not too distant future. However, before that happens, we need to keep something important in mind, and that’s what tapering is not.

****We’ve gotten so used to hearing the dreaded word taper recently that I think we’ve forgotten what exactly the word means. What it doesn’t mean is tightening.

****Some people, I think, have started to panic and are worried that once the Fed starts tapering, it will at the same time starting tightening monetary policy, driving interest rates sharply higher and snuffing out the nascent housing recovery. Fears of that happening have gotten way over blown, and they’re just not realistic. In short, in my view (full disclosure: I’m not an economist), the markets have overreacted.

****Yes, it’s true that mortgage interest rates have risen sharply higher in recent months as the taper talk has gotten louder. According to Freddie Mac, the average rate on a 30-year mortgage in early August was 4.40%. That’s up over 100 basis points since early May, and the highest rate in nearly two years.

****However, it looks to me like mortgage rates have gotten about as high as they’re likely to get for a while, or pretty close to it, even if the Fed really does start tapering soon. But even if rates were to rise a bit higher – say, to 5% for a 30-year mortgage – that’s not nearly enough to kill the housing recovery.

****Are people really going to stop buying houses if rates rise from 4.5% to 5%, even if they can still buy a house at a 30% discount to the 2008 price? I find that hard to believe.

****A reading of the Fed’s actual statements on the matter – and its reading of the economy – indicate that mortgage lenders and borrowers really have little to fear of any sharp rise in interest rates dowsing the housing recovery. The Fed just isn’t about to let that happen.

****In its July 31 official statement, the Fed’s Federal Open Market Committee went out of its way to note that “the housing sector has been strengthening, but mortgage rates have risen somewhat.” Clearly, the Fed is watching this carefully.

****As it has in many of its past previous statements, it also “reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens (my emphasis).”

****In other words, the Fed knows how precarious and fragile the economic recovery has been, so low interest rates are here to stay for the foreseeable future, tapering or not. That should make everyone in the mortgage and housing industries happy.

****As I’ve said in this space before, interest rates aren’t what’s keeping many people from getting mortgages, its overly tight lender underwriting. Unfortunately, the Fed can’t do much about that part. But they are doing what they can to keep the housing recovery going, and that’s by keeping interest rates low. And that’s not likely to change any time soon.