Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.
Mortgage loans are out of fashion with some big banks these days because of the high cost of originating a loan. Jamie Dimon, CEO at JPMorgan Chase, openly questioned why the bank is still in the mortgage business in the company's shareholder letter, citing "increasingly lower returns."
But lenders looking for better results with other lending products have limited options. As this article in the May issue of the Atlantic shows, the same regulators that have driven up mortgage loan origination costs are now training their sights on payday lenders.
Payday lending rules proposed by the Consumer Financial Protection Bureau would prevent consumers from re-borrowing to pay the interest on these loans, but has other consequences that hurt both lenders and consumers.
But the industry argues that the (CFPB's) rules would put it out of business. And while a self-serving howl of pain is precisely what you’d expect from any industry under government fire, this appears, based on the business model, to be true—not only would the regulations eliminate the very loans from which the industry makes its money, but they would also introduce significant new underwriting expenses on every loan.
The bureau seems to recognize that these loans play an important role for some borrowers, who use them to make ends meet short-term. But the bureau's plan to transfer these loans to traditional banks is also faltering.
Back in 2008, the FDIC began a two-year pilot program encouraging banks to make small-dollar loans with an annualized interest-rate cap of 36%. But it didn’t take off, at least in part because of the time required for bank personnel, who are paid a lot more than payday-store staffers, to underwrite the loans.
Read the whole article here.
Falling in love can be costly, especially when the object of your affection is a house. A New York Times article tells the story of a couple who bought a boarded-up house in Detroit for $35,000 but ended up spending $400,000 on its renovation.
If that strikes you as going against all sound financial judgment, you are not alone. But the star-crossed lovers were undeterred. From the article:
“First, they realized only after they had bought the house that there were no construction loans available. That was because there wasn’t any evidence that after renovation, homes like theirs would be worth more than what it would cost to fix them.
So whatever work the couple wanted to do, they would have to pay for it themselves.Then, they could try to get a mortgage after the work was done and take out cash to repay any other debts they incurred along the way.”
Unfortunately, that plan meant borrowing more than $100,000 from family members, taking out $50,000 in personal loans and eventually a $25,000 loan from Lending Club.
Does the story have a happy ending? That depends on what makes you happy. Read the whole article and decide for yourself.
The lead contamination of tap water in Flint, Michigan, has drawn nationwide attention to the growing problem of polluted water, but some of the worst places for pollution might surprise you. A RealtyTrac survey published Saturday in MarketWatch revealed that the Los Angeles-Anaheim-Long Beach area is the most polluted housing market in the country.
The article states that "321 ZIP Codes, or 99% of the market, recording high or very high levels of exposure to unhealthy air, polluted land or water, plus, as if that weren’t enough, dangerous drug labs, according to the real estate research firm RealtyTrac."
That pollution will also make it harder to sell those homes.
The median sales price of homes in high-risk ZIP Codes for man-made environmental hazards was $251,106 in 2015 on average, 15% lower than the median sales price of $295,202 for homes in ZIP Codes with low or very low risk, RealtyTrac said.
What other housing markets made the most-polluted list? Read the article here.
Hotel developers are creating a silver lining from some of the empty commercial spaces in Rust Belt cities, converting them into luxury hotels. An article in Bloomberg explains how the investments take advantage of lower rents in smaller cities, while meeting consumer demand for interesting spaces with a back story.
The conversions include a Model-T plant, a fur-trading business and an education building, but the best location yet may channel the spirit of Janet Yellen. From the article:
For the Embassy Suites project in Kansas City, a developer is planning to spend $149 million spiffing up a former Federal Reserve Bank building. There you'll be able to relax in ornate splendor amid the ghosts of central bankers.
The FDIC closed no banks for the week ending April 22, 2016.