Interesting to see that having a down-payment for a house isn’t good enough any more:
The Bank of Mom and Dad is playing a growing role as lender of last resort for a housing recovery struggling to provide more traction for the U.S. economy.
Last year, 27 percent of those purchasing a home for the first time received a cash gift from relatives or friends to come up with a down payment, according to data from the National Association of Realtors. That’s up from 24 percent in 2012 and matches the highest share since the group began keeping records in 2009.
Those numbers will probably keep growing this year as younger Americans remain constrained by student debt, tough entry into the job market and stricter mortgage-lending rules that require more cash up front. At the same time, rising stock and property values give their baby boomer parents the ability to assist those wanting to lock in near record-low borrowing costs.
…
The increase in such cash gifts also has lenders on guard against unstable sources of down payment funds.“The regulatory agencies are very, very specific about the paper trail requirements,” said Staci Titsworth, a regional loan officer in Pittsburgh who works in the mortgage division of PNC Financial Services Group Inc. “It truly needs to be a gift with no expectation to repay, because once expectation to repay comes into the equation, now you’ve got borrowed funds for down payment, which is unacceptable.”
PNC, as with other lenders such as Regions Financial Corp. and BB&T Corp., requires that the gift be from a relative by blood or marriage, with few exceptions. A “gift letter” with the mortgage application typically must include the amount of the gift, date the funds were transferred, donor’s basic identification and relationship to the buyer, and a statement that no repayment is expected, according to representatives of the three banks.
Financial institutions are careful about determining the source of funds because, while mortgages secured with the help of gifts from family are about as sound as those without any help, gifts linked to the seller were found to have increased default rates during the housing crisis, according to data from the Federal Housing Administration. Gifts from the seller are now banned by the agency.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 11bp, FixedResets off 2bp and DeemedRetractibles gaining 4bp. Volatility was muted. Volume was a little below average.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0415 % | 2,650.7 |
| FixedFloater | 4.17 % | 3.43 % | 24,419 | 18.50 | 1 | -0.0877 % | 4,160.2 |
| Floater | 2.91 % | 3.04 % | 53,403 | 19.62 | 4 | -0.0415 % | 2,741.0 |
| OpRet | 4.05 % | 1.65 % | 91,511 | 0.08 | 1 | -0.0395 % | 2,726.0 |
| SplitShare | 4.30 % | 3.80 % | 110,954 | 3.91 | 5 | -0.1009 % | 3,147.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0395 % | 2,492.7 |
| Perpetual-Premium | 5.47 % | 2.48 % | 70,374 | 0.09 | 20 | -0.0766 % | 2,435.9 |
| Perpetual-Discount | 5.27 % | 5.18 % | 101,303 | 15.15 | 16 | -0.1053 % | 2,588.5 |
| FixedReset | 4.24 % | 3.79 % | 187,250 | 8.49 | 74 | -0.0203 % | 2,556.5 |
| Deemed-Retractible | 5.00 % | 1.95 % | 110,346 | 0.28 | 42 | 0.0419 % | 2,563.5 |
| FloatingReset | 2.61 % | -0.95 % | 75,689 | 0.08 | 6 | 0.0326 % | 2,539.8 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PF.B | FixedReset | -1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 23.07 Evaluated at bid price : 24.63 Bid-YTW : 4.26 % |
| BAM.PR.X | FixedReset | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 21.81 Evaluated at bid price : 22.06 Bid-YTW : 4.13 % |
| TRP.PR.B | FixedReset | 1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 19.96 Evaluated at bid price : 19.96 Bid-YTW : 3.77 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| FTS.PR.M | FixedReset | 1,507,011 | New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 23.18 Evaluated at bid price : 25.10 Bid-YTW : 4.02 % |
| TRP.PR.E | FixedReset | 375,056 | RBC crossed 50,000 at 25.39; TD crossed 300,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 23.27 Evaluated at bid price : 25.35 Bid-YTW : 3.94 % |
| TD.PR.Q | Deemed-Retractible | 134,350 | Scotia crossed 40,000 at 26.27; TD crossed blocks of 40,000 and 48,400 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.75 Evaluated at bid price : 26.20 Bid-YTW : -6.57 % |
| BAM.PR.P | FixedReset | 108,512 | Called for redemption September 30. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.91 % |
| ENB.PR.T | FixedReset | 82,843 | TD crossed 78,000 at 24.03. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-19 Maturity Price : 22.76 Evaluated at bid price : 23.92 Bid-YTW : 4.29 % |
| HSB.PR.C | Deemed-Retractible | 68,540 | TD crossed 62,700 at 25.33. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : -8.70 % |
| There were 28 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PF.B | FixedReset | Quote: 24.63 – 25.00 Spot Rate : 0.3700 Average : 0.2138 YTW SCENARIO |
| PWF.PR.O | Perpetual-Premium | Quote: 26.11 – 26.40 Spot Rate : 0.2900 Average : 0.2076 YTW SCENARIO |
| ELF.PR.G | Perpetual-Discount | Quote: 22.13 – 22.47 Spot Rate : 0.3400 Average : 0.2581 YTW SCENARIO |
| W.PR.H | Perpetual-Premium | Quote: 25.10 – 25.45 Spot Rate : 0.3500 Average : 0.2757 YTW SCENARIO |
| RY.PR.Z | FixedReset | Quote: 25.30 – 25.55 Spot Rate : 0.2500 Average : 0.1758 YTW SCENARIO |
| CU.PR.E | Perpetual-Discount | Quote: 24.23 – 24.43 Spot Rate : 0.2000 Average : 0.1346 YTW SCENARIO |
The fact that kids need downpayments from Mom and Dad at such a rate is a clearer indication that the middle class is dying as has been the case for 30 years. Regulations that keep interest rates at artificially low levels that push up house prices and graduates getting jobs with little benefits , benefits being eliminated for current workers . all this is a very bad sign of things to come . Eventually the regulators will let rates naturally rise and the house of cards will start to fall. Anyone rememeber 1980 with 22% mortgage rates, forcelosures galore and unemployment rising. Artifical interevention never works , never has. We are not immune in Canada the only difference has been higher quality immigration of educated individuals and oil, but that will slow and soon the parents will need a note from thier parents to get a loan !
Some of it may be the hollowing out of the middle class, but a large part of it is student debt. In Monday’s market action I will be highlighting a Bloomberg story College Debt Leaves Generation X Grads Less Wealthy Than Parents based on a Pew Research study A New Financial Reality.