There's another sign out there that things are improving. We are starting to see new construction again. When prices go down, new construction has a hard time competing, since the costs of land, site improvements, labor, and materials don't really go down much, so new construction can't compare to the price of a home that was built a few years ago. In addition, loans are harder to get, and most builders find it difficult to get financing for projects. Add in the time a completed home could sit on the market before selling, and you don't see much being started.
Lately, statistics from around the country show housing starts beginning to rise. We're at the end of that increase, since we don't have as much land, as much new employment, and costs as low as some other states. Even we, however, are noticing activity. There is always a portion of the buying public that seeks out new construction, especially people moving from other places, who want their new home to look like the home they left behind. In recent years, many of them have turned to renting, either because they left behind an unsold home, or because they were worried that it was the wrong time to be buying. Eventually, even the most skittish will want to settle down. And it looks as though that time may be upon us--good news for everyone!
Showing posts with label loans. Show all posts
Showing posts with label loans. Show all posts
Tuesday, February 7, 2012
Monday, March 1, 2010
Mortgage Rates are Going Up
Newspaper articles over the weekend made it clear what we already knew--mortgage rates are going up. Policies are changing, and banks can only make money by passing some of the charges along. As their ability to make money with fees is curtailed by governmental regulations, it's inevitable that the result will be higher rates.
Banks make money in at least three ways on mortgages. First, they collect fees when the loans are made. This is where the recent oversight by the Feds has led to restrictions on fees of every kind. Secondly, they make income from the servicing of loans; i.e., fees for handling the monthly payments. When a bank sells off loans in the secondary market, either to reduce risk or to preserve capital, it loses those servicing fees. Lastly, they make money from interest on the loan itself. If the first two sources of funds are curtailed in some way, it stands to reason that the banks would need to raise interest rates.
Although we have read a great deal lately about Washington's displeasure with banks and bankers, it does't seem reasonable to expect them to make loans that don't make a profit. After all, they are for-profit entities (and we want them to be, since we don't want to have to keep bailing them out!). In addition, someone has to pay for all the oversight being done; it takes time and employees to answer all the questions and fill out all the forms required by the government. There is a great deal more of that lately, and the costs of compliance have risen.
Therefore, we should all understand that money lost from one source of income must be made up for somewhere else. If we lower credit card rates and fees, or checking account fees, or late fees, something other fee or cost will have to go up. This time, it's mortgage rates.
Banks make money in at least three ways on mortgages. First, they collect fees when the loans are made. This is where the recent oversight by the Feds has led to restrictions on fees of every kind. Secondly, they make income from the servicing of loans; i.e., fees for handling the monthly payments. When a bank sells off loans in the secondary market, either to reduce risk or to preserve capital, it loses those servicing fees. Lastly, they make money from interest on the loan itself. If the first two sources of funds are curtailed in some way, it stands to reason that the banks would need to raise interest rates.
Although we have read a great deal lately about Washington's displeasure with banks and bankers, it does't seem reasonable to expect them to make loans that don't make a profit. After all, they are for-profit entities (and we want them to be, since we don't want to have to keep bailing them out!). In addition, someone has to pay for all the oversight being done; it takes time and employees to answer all the questions and fill out all the forms required by the government. There is a great deal more of that lately, and the costs of compliance have risen.
Therefore, we should all understand that money lost from one source of income must be made up for somewhere else. If we lower credit card rates and fees, or checking account fees, or late fees, something other fee or cost will have to go up. This time, it's mortgage rates.
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