The New Tax Act: A Side-by-Side Comparison

I watched the Congressional debates, listened to the pundits of both sides, and did my own research .... despite the hysterics, hyperbole, and outright fear-mongering and lies from opponents to the plan, "The Tax Cuts and Jobs Act" will benefit the vast majority of families in the lower and middle classes.

Can a single opponent explain - without exploding into exaggerated, generic hyperbole: How nearly doubling the standard deductions is bad for families? Why doubling the child tax credit is awful? How lowering the tax bracket rates for EVERY single family earning less than $400,000 is disastrous? How increasing the medical expense deduction is hurtful to Americans? The list of benefits in this Act go on and on.

To compensate (some like to say "pay") for these substantial tax cuts, the government will either have to either increase overall taxable revenues, or simply make cuts to bloated, overgrown, out-dated government systems. And considering how out-of-control the government has become, cutting less than 8% of its current expenditures can't be that difficult.

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How Mortgage Pricing Moves with Economic News:

How mortgage pricing moves with economic news

Here’s a quick lesson in finance. Mortgage bond prices move in the form of basis points, and 100 basis points equals 1%.

Certain economic factors change the direction of stocks and bonds, things like domestic and worldly happenings and more specific indicators such as the jobs report, retail sales data, consumer confidence, Federal Reserve meetings, and more.

On any given day the market is negative, unchanged, or improved in the form of basis points. If you have your eyes on a 4% mortgage rate with no points on a 30-year fixed after the lender takes into consideration all of the pricing adjustments, and you’re hoping for something better by floating your interest rate (that is, not locking in your rate), and the market worsens 25 basis points, your 4% rate would still be available, but it would come at a cost of 25 basis points of your loan amount. If you’re looking at a loan of $400,000, that’s $1,000 in the form of discount points based solely on market forces. Such a change would come as a closing item in the form of discount points.

If the market improves by 0.25% and you’re looking at that 4% interest rate, now the 25 basis points will be a credit toward fees.

The higher the rate you choose to pay, the lower the fee tied to that specific rate. Conversely, the lower the rate you select, called “no points,” where no lender credit is awarded, but there are also no points paid either, is a middle-of-the-road option many opt for.

Market timing is hindsight

There’s no such thing as a nonprofit mortgage lender. All mortgage companies—brokers, banks, credit unions, any financial entity that offers mortgage loans—have a profit motive.

Securing the lowest possible interest rate is impossible, because you’ll never be able to borrow money at the lender’s cost of funds, ever. Moreover, there is no way to time the market; all you and your lender can do is make an educated decision about the rate and the pricing tied to your mortgage transaction in lockstep with the market.

Generally, offers from mortgage companies tend to be priced in close proximity to one another on any given day, as lenders have to stay competitive to be profitable. You can expect differences of 0.125% to 0.25% in rate among loan providers. It is up to you, as an informed consumer, to choose the mortgage company you believe will give you a competitive rate and pricing for your specific scenario.

Four Rate Hikes Expected in 2018

 

Well, I have been screaming this the last 11 months at least...  and although many of our clients will read "rates rising" as a horrible calamity, it actually is a positive on the macro.  Yes, that loan will be slightly more expensive...  but you'll be making considerably more money and will likely have a tax cut into the bargin, so it works itself out. 

Goldman Sachs predicts the Federal Reserve will raise rates at least four times in 2018, spurred by a tight labor market and higher levels of inflation.

The economy will continue to improve, spurred forward by the reconstruction following recent hurricanes and proposed tax cuts, Goldman economists wrote, according to an article by Reuters.

From the article:

“The U.S. economy heads into 2018 with strong growth momentum and an unemployment rate already below levels that Fed officials view as sustainable,” Goldman’s economists wrote in note dated Friday.

Other experts agree next year will see four rate hikes. Capital Economics recently released its prediction, saying next year’s change in Fed Chair won’t matter, rates will still be raised four times.

However, this is still more than Wall Street has been expecting for next year, the Reuters article explained, saying Wall Street’s top banks predicted the Fed will raise rates just three times in 2018.

From the article:

The U.S. central bank has raised rates twice this year and currently forecasts another hike in its benchmark lending rate from its current target range of 1.00 percent to 1.25 percent by the end of 2017.

The Mortgage Bankers Association also predicted rates will continue rising, saying mortgage rates could pass 4% or even 5% over the next few years.

Goldman also increased its current gross domestic product forecast, saying GDP will grow to 2.5% next year, and reach 3.5% by the end of 2019. The unemployment rate is predicted to fall to 3.7% by the end of 2018.

Source: Reuters

South Florida Warehouse Space is Booming

Like most things, over time renting is not cost effective.  As the distribution system for consumer goods shifts from retail locations to home delivery, more warehouse and logistics space will be needed.  Short term financing while rates are still affordable might be the answer a seasoned investor may be looking for. 

https://therealdeal.com/miami/2017/08/04/is-it-amazon-fever-miami-dades-industrial-market-booming-rental-rates-skyrocketing-report/

 

Florida is the Number One Destination for Foreign National Buyers.

While Latin Americans are still hungry for Miami real estate, an Eastern European country popped up on a September report tracking web searches for South Florida homes: Ukraine.

Buyers from Colombia again led foreign interest in Miami homes in September, marking the seventh consecutive month the South American country has led the Miami Association of Realtors’ list.

Colombians represented 11.4 percent of all international web searches on MiamiRealtors.com in September, the same month Hurricane Irma hit the Florida Keys.

Canada ranked second with 10.4 percent of searches, followed by Ukraine with 5.5 percent and Venezuela with 5.2 percent. The top three international cities visiting the association’s property search website were: Ontario, Canada, Bogotá, Colombia, and Kiev City, Ukraine.

Check out the top 10 list of countries looking for Miami homes in September:

  1. Colombia
  2. Canada
  3. Ukraine
  4. Venezuela
  5. Spain
  6. Brazil
  7. Italy
  8. India
  9. Argentina
  10. Philippines

A Quick Divergence on Irma

As the world in general knows, the state of Florida and south Florida specifically, just experienced one of the biggest hurricane in history.  Understandably this has led to a few delays, but we were here weathering the storm, and surprisingly barely missed a beat.  48 hours later we are back and fully operational. 

However… Fannie Mae and Freddie Mac, the cornucopia from which all lending flows, has issued a set of new criteria for all loans in the post-Irma aftermath, rather euphemistically referred to as “Affected Areas Supplement”. 

In summation, these policies are in force for all loans not yet closed at the time of the disaster and these policies will continue for 90 days after the disaster. 

Basically, any Conventional or FHA loan will require a certification from the ORIGINAL APPRAISER and the completion of a Form 2070/2075/1004D certifying that:

1.       The property has not sustained any flood, tornado, or wind damage AND

2.       Interior AND exterior photographs and

3.       Statement on the neighborhood conditions as they relate to flood, tornado, or wind damage. 

This re-inspection is the responsibility of the borrower and the fee will be reflected on the closing statement. 

…and before you ask, this is coming from Fannie/Freedie so there is no way around it and no appeal. 

FHA Making It Easier

So… there have a been a lot of changes recently in both Conventional and FHA Guidelines.  Things are getting… easier?  Maybe not easier, but restrictions are definitely loosening.  Somewhat. 

Sometimes. 

In places where a large segment of the population may not have the best credit score, may not have a long employment history, or may not have the required number of trade-lines open to qualify for FHA, like Miami, FHA has just come out with several new requirements. 

·         FHA and VA have entirely eliminated the need for minimum trade-lines (the old requirement was three).   

·         The waiting time after a foreclosure is completed to re-qualify for an FHA mortgage has been shortened from 4 years to 3 years.  (*with a 640 minimum credit score)

·         The waiting time after a Chapter 7 bankruptcy has been discharged has been shortened from 4 years to just 2 years.  (*with a 640 minimum credit score)

·         If you do not have a credit score that is reporting: 

o   A 43% maximum DTI (Debt-to-Income) ratio is necessary. 

o   A co-borrower is required who must have a minimum 640 credit score. 

o   There must be 3 non-traditional credit references

Depending on how reliant any finance or loan professional is on automated underwriting systems, they will very likely get an “refer” result from their software, which they will interpret as the end of the road.  But if your advisor knows the ins and outs of the system this can be easily overcome. 

As always, we’re here to help. 

Ocean Capital Funding and Miami Government

Today we are honored to have been invited to an event in support of Francis Suarez, the next Mayor of our beautiful home of Miami, Florida.  At this gathering we hope to discuss how Ocean Capital Funding can offer financing possibilities to Japanese clients through our extensive Foreign National investment programs with the Consulate General from His Majesty the Emperor of Japan, Hon. Mr. Ken Okaniwa.