[REN #736] Real Estate News Brief – U.S. Financial Stability Report, Refinancing Crackdown, Credit Repair Lawsuit

Picture of desk, plant and calendar for Real Estate News for Investors Podcast Episode #736

In this week’s Real Estate News in Brief… the results of a U.S. financial stability report, a refinancing crackdown, and a new lawsuit against two big credit repair companies.

Economic News

We begin with economic news from this past week, and a financial stability report from the Federal Reserve. The Fed report says the financial sector is resilient overall, but it also reported an increase in the number of risky loans issued to companies already struggling with debt. The report says, over the last nine months, the share of risky loans has risen above peak levels seen in 2007 and 2014. It also says that credit standards have been deteriorating.

The U.S. trade deficit grew a bit in March. It was up 1.5% to $50 billion. Imports from China have dropped because of the ongoing trade dispute, so that gap fell to its lowest level in three years. It was about $13 billion less than it was for the same timeframe a year ago. The trade war with China also continues with new tariffs that went into effect on Friday, May 10th. (1)

Consumer prices were higher in April, pushing inflation up .3%. That brought the inflation rate up to the Federal Reserve’s 2% target. The increase is mostly due to higher rents and gas prices. The Core CPI, which strips out gas and food costs, rose .1% for a yearly rate of 2.1%. The government says that U.S. rents have climbed 3.8% over the last year.

There’s more proof of a strong job market. The number of people applying for unemployment fell again in early May, and the number of job openings is close to a record high. The Federal government reports that jobless claims dipped about 20,000 in the past week to 228,000. The Labor Department reported 7.49 million open positions. The unemployment rate hit a 50-year low of 3.6% last month. (2)

Mortgage Rates

Mortgage rates dropped slightly this last week. Freddie Mac says the average 30-year fixed-rate mortgage was down 4 points to 4.1%. It is expecting low rates and the strong job market to inspire more home buying activity and refinancing.

In other news making headlines…


Refinancing Crackdown

Although refinancing can be beneficial, there’s a new push by Ginnie Mae to prevent something called “churning.” That’s when lenders push homeowners to refinance over and over again. Borrowers end up paying unnecessary fees, and cash-out options often increase the loan to value ratio to more than 90%. According to the Wall Street Journal, cash-out refi’s are usually capped at 80%. FHA loans are typically capped at 85%.

This is a practice that has apparently been happening more to military veterans. The Journal reports that the crackdown began a little more than a year ago, to cut down on churning among veterans. Ginnie Mae is currently asking for input from investors and other stakeholders on how to set a new policy on churning. One option is to package these loans into separate securities, with pricing that reflects the increased risk. (3)

Inverted Yield Curve

Economists are weighing the implications of another inverted yield curve. The yield on 10-year Treasury note inverted this last week, meaning that it’s now less than the 3-month bill. Many economists say this is a sign of recession, although we don’t have a typical economy right now. The yield curve also inverted in March, and stuck around for about a week before it went back into positive territory. Bloomberg News says, the yield curve has been “hurtling toward zero” due to the trade dispute between the U.S. and China.

Credit Repair Cheats

Two companies that help people improve their credit scores are being accused of tricking and cheating customers. The Consumer Financial Protection Bureau has charged CreditRepair.com and Lexington Law of deceptive advertising and illegal charges.

The CFPB says the companies made false claims in their ads, and they asked for upfront fees, which are illegal. They are only allowed to ask for payment after they have facilitated the promised results.

The CFPB said in the lawsuit that it is suing the companies to keep them from “engaging in ongoing, unlawful practices that harm consumers nationwide by charging consumers unlawful advance fees in connection with credit repair services and by marketing and telemarketing those services through deceptive representations, and to obtain relief for consumers who were harmed by these practices.

(1) Trade Deficit: MarketWatch

(2) Strong Job Market

(3) Repeated Refinancing

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