0
0
0

The Short List: John Agostinelli’s Tips For Understanding Today’s Financing Landscape

by Boston Agent

john-agostinelli-realty-group-boston

John Agostinelli is the owner of Agostinelli LLC and World Properties International

Every week, we ask a real estate professional for their Short List, a collection of tips and recommendations on an essential topic in real estate. This week, we talked with John Agostinelli, the owner of Agostinelli LLC and World Properties International, for his tips on understanding today’s financing landscape.

As a real estate agent you are expected to be an expert in all aspects of real estate. Although that is a near-impossible expectation, you should, at the very least, have a good understanding of where the real estate market stands today, especially as it pertains to home finance.

So with that in mind, here are six key themes you should be aware of in today’s home finance landscape:

6. Let’s begin with a quick explanation of how we got here. For the past 50 years, housing policy has relied on looser underwriting standards in an effort to increase homeownership and help the economy. Much of that lending has been targeted to low- and moderate-income homebuyers in an attempt to build wealth for these households.

That agenda has pushed a reliance on high leverage, long amortization schedules (30-year loan terms), low down payments and high debt to income (DTI) ratios. In addition, these loans are often made to borrowers with impaired credit. That approach may have increased homeownership rates in the short term, but many homeowners could not handle their payments, and we are now seeing homeownership rates that are returning to a modern era trend-line in the low-60-percent range. The push towards homeownership has neither increased the rates over the long haul, nor has it reliably created wealth.

5. After this push failed and the great recession took hold, lawmakers Barney Frank and Chris Dodd championed new legislation, called the Dodd-Frank Act (DFA), to prevent another financial debacle. The DFA greatly expands oversight and regulation of the financial institutions not seen since the Great Depression, and includes three criteria for housing finance reform: first, a high quality mortgage— called the Qualified Residential Mortgage (QRM)—that would have a minimal incidence of default; second, a set of minimum mortgage standards called the Qualified Mortgage (QM); and third, a requirement that the securitizer of any mortgage not a QRM retain at least 5 percent of the risk of any mortgage pool it sponsors. Unfortunately, politicians exerted their influence in defining QRM, which has resulted in a watered down version that only meets the minimum requirements of QM; in other words, the lending standards are looser and less safe than originally intended.

4. NAR and the general media have reported that the mortgage market is tight, and the Federal Reserve Chair, Janet Yellen, has stated that only people with pristine credit can get financing; neither statements are accurate. According to the American Enterprise Institute, there has been little discernible volume impact from the Qualified Mortgage regulation. Over the past three months, the DTI ratios are high, and a significant number of them were greater than 43 percent. Currently, the number of Fannie and Freddie loans that have total DTIs greater than 38 percent is more than double what they were in 1990. The Federal Housing Administration (FHA) has a sizable share of loans with DTIs over 50 percent, which is an extremely high pre-tax payment burden. That makes it difficult to pay income tax, commuting expenses, living expenses and food with what is left.

The VA’s residual-income underwriting is the key to limiting defaults, and it’s unfortunate that Fannie Mae, Freddie Mac and the FHA do not look at this less risky method of analyzing ability to repay. The softness in mortgage lending is not due to tight standards, but to reduced affordability, loan put-back risk (part of DFA) and the sluggish economic recovery. The truth of the matter is that this recovery has had limited gains in income, and with an unequal distribution.

3. It appears that our memories are short, and the financial lessons learned from the recent financial debacle are fading with the GSEs officially re-entering into the 97 percent LTV market. Currently, more than half of all purchase loans have a down payment of 5 percent or less. Under the original QRM proposed standards, borrowers would have been required to put 20 percent down. However, as noted above, that proposed standard disappeared under political pressure, as politicians and the real estate industrial complex have continued to push for looser lending standards – which, with an expanding credit box, will result in higher defaults.

2. Even if a buyer can obtain financing, you may want to advise them to examine their true ability to repay, and suggest that they may want to leave enough money to contribute to retirement plans and saving for their children’s education. Just because a lender will lend, does not mean that it is in the best long-term interest of the buyer. As a matter of fact, higher debt to income (DTI) ratios limit participation in defined contribution retirement plans such as 401(k)s, most of which come with employer matching contributions.

Furthermore, having a high DTI often leads to insufficient income to meet the requirements of the mortgage, living costs and saving for the future. A 401(K) plan can be a reliable and attractive means for private wealth accumulation, particularly for the very groups that were the target of the increase in homeownership. Keeping the DTI to more affordable levels will allow for the unexpected household expenses that we all experience, and make it more likely to weather other financial upsets (such as losing a job).

1. Interest rates are worth watching. Newer agents often do not understand that, historically, more typical interest rates have been in the 7-8 percent range, and that we are still near historic lows. This is not likely to last too much longer. Because the Federal Reserve expanded the money supply to unprecedented levels, it will likely result in inflation sometime in near the future. Once inflation starts, interest rates, including mortgages, will quickly follow. As mortgage rates rise, it will have an adverse effect on purchasing power, and will apply downward pressure on pricing.

Share your knowledge with your clients – it will likely be in their best interest, and will allow for a long-term, sustainable growth in housing, rather than the up and down cycles that cause so much turmoil in the markets.


John Agostinelli is the owner of Agostinelli LLC and World Properties International, which offers real estate brokerage and investing consultation services to select investor groups and individuals.  He is the co-author of a soon to be released book (in early 2015) that covers the ill-fated government policies that affected the financial and real estate markets, which were designed more for social purposes and political gain than economic growth and sustainability.

Additionally, John worked in the banking industry, including five years at the FDIC in the Bank Investigations and Foreclosure Units.  He also served on the Broker Advisory Council for Lender Processing Services (formerly known as Fidelity National Financial), which was the largest default service provider in the Nation; only 12 of more than 6,000 preferred real estate broker/agents were selected to serve on the council.

Read More Related to This Post

Comments

  • Chris Michaud says:

    Good info and good observations. Now if we could only get the public to understand what is going on…as we seem to be heading down that same primrose path…

  • Kevin McCarthy says:

    The author is wise to remind us of our short memory. When we see LTV’s going north of 90% and DTI gobbling up over 50 cents of every dollar earned pain is sure to follow.

  • Peter Agostinelli says:

    Great article

  • Desiree says:

    Great insight, John ! We are still feeling the effects of the mess with Fannie and Freddie. It’s been a slow recovery with the economy as a whole, and job creation and new home construction are lacking. The rut that the housing market has been in is a contributing factor.

  • George DiGregorio says:

    Over the past two decades, everything has hinged on automated underwriting and at one point, DTI ratios of over 100% were approved via fannie/freddie. That has been dialed back and is pretty much hard set at 45%. The good news is, many consumers are waking up and realizing that the bank should not be the one to tell them what they qualify for. That number should really come from them. Fortunately buyers are getting more conservative but we still see a lot of high DTI loans.

  • Karen Cusack says:

    Good article John! The frustration for the buyer right now is inventory; they want to be able to lock in with a low rate, but can’t find what they’re looking for.

  • Glenn Fosberg says:

    Great article . It`s amazing to think of how much control the politicians have on the real estate market.

  • Michael Bell says:

    Desire to own, desire to lend, desire to rule. This combination of unprepared borrowers, aggressive lenders, and counter productive politicians is sure to lead us back into the muck. This article does a nice job outlining this issue.

  • IHAV NUTS says:

    Very insightful analysis about the state of our lending and real estate sectors. Greedy lenders preying on the poor joeys who eventually end up in an avalanche of debt. Its been all downhill from there. Unfortunately, unlike the author, most don’t see the forest through the trees.

  • James Paige says:

    “includes three criteria for housing finance reform: first, a high quality mortgage— called the Qualified Residential Mortgage (QRM)—that would have a minimal incidence of default; second, a set of minimum mortgage standards called the Qualified Mortgage (QM); and third, a requirement that the securitizer of any mortgage not a QRM retain at least 5 percent of the risk of any mortgage pool it sponsors. Unfortunately, politicians exerted their influence in defining QRM, which has resulted in a watered down version that only meets the minimum requirements of QM; in other words, the lending standards are looser and less safe than originally intended.”

    So White Knight regulators ride in on their high horses rescue to fix the problem that they poured the foundation for, under the guise of protecting the public. Because mandating lending standards that would address the problem of limiting borrowing to unqualified borrowers would conflict with populist policies to a voting population that favors the candidate who promises the most favors and goodies however, they create a window-dressing solution in the form of a law, that actually accomplishes little to nothing. Classic “Legislation Vaporware”.

    • james Paige says:

      Correction: I wrote above that the new law “accomplishes little to nothing” when it does in fact raise barriers-to-entry for would be competitors in the finance sector by further raising cost and increasing complexity merely to be compliant with Vaporlaw. Unless you has a squadron of attorneys, better rethink opening that bank or brokerage.

      Cumulative benefit of regulator-protected market entrenchment… What a beautiful thing.

      Goldman Sachs and Morgan Stanley 3> Dodd/Frank.

  • You got a very wonderful website, Gladiolus I detected it through yahoo.

  • Keep working ,splendid job!

  • the time to read or check out the material or web pages we’ve linked to beneath the

  • All new questions on scrapebox list replied and why you should definitely review each word within this document.

  • here are some hyperlinks to web sites that we link to since we believe they are worth visiting

  • the time to study or visit the content or web pages we’ve linked to below the

  • here are some hyperlinks to web-sites that we link to simply because we feel they’re really worth visiting

  • I just want to mention I am just new to blogging and site-building and really liked your web page. Almost certainly I’m likely to bookmark your blog post . You certainly have terrific articles. Thanks for sharing your blog site.

  • garcinia gambogia says:

    I’ve been browsing on-line greater than 3 hours these days, but I by no means discovered any fascinating article like yours. It’s beautiful value sufficient for me. In my opinion, if all webmasters and bloggers made excellent content as you did, the net might be a lot more useful than ever before.
    garcinia gambogia http://www.chow.com/profile/1530752

  • effetti garcinia cambogia says:

    I have been surfing on-line more than three hours these days, but I by no means discovered any attention-grabbing article like yours. It’s beautiful price enough for me. Personally, if all site owners and bloggers made excellent content material as you did, the internet will be a lot more helpful than ever before.
    effetti garcinia cambogia http://www.ted.com/profiles/4142429

  • le garcinia cambogia says:

    I’ve been surfing online greater than 3 hours these days, yet I never discovered any interesting article like yours. It is pretty value enough for me. In my opinion, if all webmasters and bloggers made excellent content as you probably did, the internet will be a lot more helpful than ever before.
    le garcinia cambogia https://www.codeplex.com/site/users/view/comestug7

  • garcinia cambogia veda recensioni says:

    I have been browsing online more than three hours today, yet I by no means found any fascinating article like yours. It is lovely price enough for me. In my opinion, if all webmasters and bloggers made good content as you probably did, the net might be a lot more useful than ever before.
    garcinia cambogia veda recensioni https://java.net/people/1035436-fausetqoxa41

  • As a Newbie, I am constantly browsing online for articles that can benefit me. Thank you

  • What a stuff of un-ambiguity and preserveness of precious know-how on the topic of unpredicted emotions.|

  • please go to the internet sites we comply with, such as this 1, as it represents our picks through the web

  • Valuable information. Fortunate me I found your web site accidentally, and I am shocked why this twist of fate did not happened in advance! I bookmarked it.

  • joann coupon says:

    Hello there. I discovered your blog via Google while searching for a comparable topic, your website came up. It seems great. I have bookmarked it in my google bookmarks to visit then.

  • I was just looking for this info for some time. After six hours of continuous Googleing, at last I got it in your web site. I wonder what is the lack of Google strategy that do not rank this kind of informative sites in top of the list. Normally the top web sites are full of garbage.

  • Domain Name says:

    Super-Duper blog! I am loving it!! Will come back again. I am taking your feeds also

  • I truly appreciate this post. I¡¦ve been looking everywhere for this! Thank goodness I found it on Bing. You’ve made my day! Thx again

  • Excellent goods from you, man. I’ve understand your stuff previous to and you’re just extremely excellent. I really like what you’ve acquired here, certainly like what you are stating and the way in which you say it. You make it enjoyable and you still take care of to keep it wise. I can not wait to read much more from you. This is actually a terrific web site.

  • oak flooring says:

    Heya i’m for the first time here. I found this board and I find It really useful & it helped me out a lot. I hope to give something back and help others like you helped me.

  • Thank you a lot for giving everyone an exceptionally spectacular possiblity to read articles and blog posts from this blog. It’s usually so amazing and as well , full of fun for me and my office mates to visit your web site at minimum thrice in a week to read the new items you have. And of course, I am also always impressed with your terrific ideas you serve. Selected 2 tips in this posting are basically the most impressive I’ve ever had.

  • I wish to show my affection for your generosity giving support to those people that really need assistance with the field. Your personal commitment to getting the solution around was astonishingly productive and has in every case encouraged women just like me to reach their targets. Your new useful tips and hints denotes a whole lot to me and additionally to my peers. With thanks; from each one of us.

  • I carry on listening to the reports talk about getting free online grant applications so I have been looking around for the best site to get one. Could you advise me please, where could i find some?

  • I like what you guys are up also. Such clever work and reporting! Carry on the superb works guys I¡¦ve incorporated you guys to my blogroll. I think it’ll improve the value of my web site 🙂

  • It¡¦s actually a cool and useful piece of info. I am satisfied that you simply shared this helpful information with us. Please keep us informed like this. Thanks for sharing.

  • I precisely desired to say thanks once again. I am not sure the things I could possibly have made to happen without the type of smart ideas documented by you over my theme. This was an absolute daunting matter for me personally, nevertheless being able to view a professional manner you managed that forced me to jump over contentment. I am just happy for your support and in addition expect you find out what a powerful job you were undertaking instructing the others via your webblog. More than likely you have never encountered all of us.

  • I¡¦ve been exploring for a bit for any high quality articles or weblog posts in this sort of area . Exploring in Yahoo I finally stumbled upon this site. Reading this info So i¡¦m glad to convey that I’ve a very just right uncanny feeling I found out just what I needed. I so much unquestionably will make certain to don¡¦t disregard this site and provides it a glance on a continuing basis.

  • It is appropriate time to make some plans for the future and it is time to be happy. I have read this post and if I could I wish to suggest you few interesting things or suggestions. Perhaps you could write next articles referring to this article. I wish to read even more things about it!

  • I simply could not go away your website before suggesting that I really enjoyed the standard information a person provide for your visitors? Is going to be back ceaselessly in order to check up on new posts

  • My wife and i felt quite happy Raymond managed to do his survey while using the ideas he gained while using the site. It is now and again perplexing to just always be offering information that most people may have been selling. We do understand we have got the writer to thank for that. The specific illustrations you’ve made, the simple blog menu, the relationships you can make it possible to promote – it’s got mostly powerful, and it is making our son and our family feel that the subject is thrilling, which is incredibly important. Many thanks for the whole lot!

  • Very efficiently written story. It will be helpful to anybody who usess it, including myself. Keep up the good work – looking forward to more posts.

  • oak flooring says:

    You made a number of good points there. I did a search on the matter and found the majority of people will agree with your blog.

  • Hey there. I discovered your web site by means of Google even as looking for a comparable subject, your website got here up. It seems great. I have bookmarked it in my google bookmarks to come back then.

  • Hiya, I am really glad I’ve found this information. Nowadays bloggers publish just about gossip and web stuff and this is really annoying. A good blog with exciting content, that is what I need. Thanks for making this site, and I will be visiting again. Do you do newsletters by email?

  • Hiya, I am really glad I have found this information. Today bloggers publish just about gossip and net stuff and this is really annoying. A good web site with interesting content, that’s what I need. Thank you for making this web site, and I will be visiting again. Do you do newsletters by email?

  • With the whole thing which seems to be developing within this area, a significant percentage of viewpoints are generally quite exciting. On the other hand, I beg your pardon, because I can not subscribe to your entire strategy, all be it refreshing none the less. It would seem to everybody that your comments are actually not completely justified and in actuality you are yourself not thoroughly convinced of your assertion. In any event I did enjoy reading through it.

  • forum bola says:

    Awesome write-up. I am a normal visitor of your site and appreciate you taking the time to maintain the nice site. I will be a regular visitor for a really long time.

  • Car Shipping says:

    Wonderful story, reckoned we could combine a handful of unrelated data, nonetheless actually really worth taking a look, whoa did 1 learn about Mid East has got extra problerms too

  • You really make it seem so easy with your presentation however I in finding this matter to be really something which I believe I would by no means understand. It sort of feels too complicated and extremely huge for me. I am having a look ahead for your subsequent submit, I will try to get the dangle of it!

  • Lesson Plan says:

    Well I sincerely liked reading it. This tip provided by you is very effective for proper planning.

  • Hey there. I discovered your site by the use of Google while looking for a comparable subject, your web site got here up. It appears to be good. I have bookmarked it in my google bookmarks to come back then.

  • Hey there. I found your website by the use of Google at the same time as searching for a comparable topic, your web site came up. It looks great. I’ve bookmarked it in my google bookmarks to visit then.

  • I think other website proprietors should take this web site as an model, very clean and fantastic user friendly style and design, as well as the content. You’re an expert in this topic!

  • Hey there. I discovered your blog by the use of Google even as searching for a similar matter, your site came up. It seems good. I’ve bookmarked it in my google bookmarks to come back then.

  • Hey there. I discovered your site via Google whilst searching for a comparable matter, your site came up. It seems to be great. I have bookmarked it in my google bookmarks to visit then.

  • Hi there. I discovered your web site by way of Google at the same time as searching for a related matter, your site came up. It appears good. I’ve bookmarked it in my google bookmarks to come back then.

  • Hello.This article was extremely remarkable, especially since I was browsing for thoughts on this subject last Thursday.

  • Here is a good Blog You may Locate Intriguing that we Encourage You

  • Well I really enjoyed reading it. This subject offered by you is very practical for correct planning.

  • just beneath, are many completely not related sites to ours, nonetheless, they may be surely really worth going over

  • Awesome write-up. I am a normal visitor of your web site and appreciate you taking the time to maintain the nice site. I will be a regular visitor for a really long time.

  • Awesome write-up. I’m a normal visitor of your blog and appreciate you taking the time to maintain the nice site. I will be a frequent visitor for a really long time.

  • Hiya, I’m really glad I have found this info. Nowadays bloggers publish only about gossip and internet stuff and this is really frustrating. A good website with exciting content, that is what I need. Thanks for making this site, and I’ll be visiting again. Do you do newsletters by email?

  • Awesome post. I am a regular visitor of your blog and appreciate you taking the time to maintain the nice site. I will be a frequent visitor for a really long time.

  • Hi there. I found your site by the use of Google while searching for a related topic, your website got here up. It appears to be good. I have bookmarked it in my google bookmarks to come back then.

  • that’s good, thanks for sharing,.. I think this is great blog

  • Hi there. I discovered your blog by way of Google whilst looking for a related subject, your site got here up. It looks good. I’ve bookmarked it in my google bookmarks to come back then.

  • Hiya, I am really glad I’ve found this info. Nowadays bloggers publish just about gossip and web stuff and this is actually irritating. A good web site with interesting content, that is what I need. Thanks for making this website, and I’ll be visiting again. Do you do newsletters by email?

  • that’s good, thanks for sharing,.. I think this is great blog

  • As I web site possessor I believe the content material here is rattling fantastic , appreciate it for your hard work. You should keep it up forever! Good Luck.

  • Awesome write-up. I’m a regular visitor of your blog and appreciate you taking the time to maintain the excellent site. I’ll be a frequent visitor for a really long time.

  • My brother recommended I might like this web site. He was entirely right. This put up actually made my day. You can not consider just how a lot time I had spent for this information! Thanks!

  • Hiya, I am really glad I have found this info. Today bloggers publish only about gossip and net stuff and this is actually frustrating. A good web site with exciting content, that’s what I need. Thank you for making this web-site, and I will be visiting again. Do you do newsletters by email?

  • Diet program says:

    that’s good, thanks for sharing,.. I think this is great blog

  • Hiya, I’m really glad I have found this info. Today bloggers publish only about gossip and net stuff and this is actually irritating. A good website with exciting content, that is what I need. Thanks for making this web site, and I will be visiting again. Do you do newsletters by email?

  • that’s good, thanks for sharing,.. I think this is great blog

  • You can definitely see your expertise within the work you write. The world hopes for even more passionate writers such as you who aren’t afraid to mention how they believe. Always follow your heart.

  • You made a number of good points there. I did a search on the subject matter and found mainly persons will agree with your blog.

  • SEO Packages says:

    Wow! Thank you! I continuously needed to write on my blog something like that. Can I implement a fragment of your post to my blog?

  • There is obviously a lot to identify about this. I believe you made various nice points in features also.

  • Fantastic beat ! I wish to apprentice while you amend your site, how could i subscribe for a blog website? The account aided me a acceptable deal. I had been tiny bit acquainted of this your broadcast provided bright clear concept

  • Keep working ,impressive job!

  • I like what you guys are up also. Such clever work and reporting! Keep up the superb works guys I have incorporated you guys to my blogroll. I think it’ll improve the value of my site 🙂

  • always a significant fan of linking to bloggers that I like but do not get a whole lot of link adore from

  • My wife and i have been really delighted Edward managed to round up his researching while using the precious recommendations he discovered from your web site. It is now and again perplexing to simply choose to be making a gift of points which often people today may have been making money from. And we all grasp we now have you to be grateful to for that. All the explanations you made, the simple site navigation, the friendships you help to foster – it’s got most awesome, and it is letting our son in addition to the family recognize that the article is satisfying, and that is exceedingly mandatory. Thank you for the whole lot!

  • great put up, very informative. I wonder why the opposite experts of this sector don’t understand this. You must continue your writing. I am confident, you’ve a great readers’ base already!

  • SEO Packages says:

    I’m still learning from you, while I’m making my way to the top as well. I absolutely enjoy reading all that is posted on your blog.Keep the stories coming. I loved it!

  • Pretty section of content. I just stumbled upon your website and in accession capital to assert that I get in fact enjoyed account your blog posts. Anyway I’ll be subscribing to your feeds and even I achievement you access consistently rapidly.

  • You could certainly see your skills in the paintings you write. The sector hopes for more passionate writers such as you who are not afraid to mention how they believe. Always go after your heart.

  • fashion tips says:

    It is perfect time to make some plans for the future and it is time to be happy. I’ve read this post and if I could I desire to suggest you some interesting things or suggestions. Perhaps you can write next articles referring to this article. I desire to read even more things about it!

  • I just couldn’t go away your web site prior to suggesting that I extremely loved the usual information an individual supply on your visitors? Is going to be again steadily in order to inspect new posts

  • Thanks , I have just been looking for information approximately this topic for a while and yours is the greatest I’ve found out till now. However, what concerning the conclusion? Are you certain in regards to the source?

  • Diet Plans says:

    Very good written information. It will be valuable to anyone who employess it, as well as yours truly :). Keep up the good work – can’r wait to read more posts.

  • Sites of interest we have a link to

  • It¡¦s really a cool and useful piece of info. I am happy that you just shared this useful info with us. Please keep us informed like this. Thank you for sharing.

  • that’s good, thanks for sharing,.. I think this is great blog

  • that’s good, thanks for sharing,.. I think this is great blog

  • Modern Sofa says:

    that’s good, thanks for sharing,.. I think this is great blog

Join the conversation

Oops! We could not locate your form.