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Home prices are rising, but even the well-off are facing obstacles from tight-fisted banks
By: Richard Satran
US News & World Report’s | August 1, 2013
Having trouble getting home financing? You’re not alone. Even wealthy people are getting rejected under the tough new lending rules adopted after 2008’s housing market crash.
Moneyed enclaves are still feeling the impact of tight mortgage money. In the breezy New Hampshire lakes region where “On Golden Pond” was filmed and waterfront homes routinely sell in the $5 million to $10 million range, sales are “brisk” but loan applications are often rejected, says sales associate Jerry Love of Peabody & Smith Realty in Holderness, N.H., on the shore of Squam Lake.
“We don’t see deals sail through with the automatic approvals that we used to see,” Love says. “And we are seeing plenty of wealthy people turned down on million-dollar loans who would easily have qualified a few years back.”
The rules may get even tougher under proposals now being considered in Washington designed to cap borrowing as a percentage of income. That will be especially bad news for first-time homebuyers and people with moderate incomes who have the hardest time lining up financing. But even those with millions in assets and high credit scores are being turned down if their income is low. And in a low-rate environment, their investment income counts for less than ever on bank loan applications.
“People with a lot of resources are usually OK getting first mortgages, but they are finding they can’t refinance or get funding for a second home,” says Tyler Vernon, a loan specialist for Biltmore Capital Advisors in Princeton, N.J. “Of course it’s a nice, high-level problem to have. But it’s a real problem for retirees in places like the Northeast.”
Also, while increasingly stringent income requirements are posing the most barriers, stingy assessments are also a frequent problem for costlier deals, according to real estate agents and lenders. In part, that’s because “assessors are protecting themselves because banks have been suing them over mortgage failures that showed inflated values,” Vernon says. Costly properties can pose difficulties when assessors try to find comparable sales for estimating what mansions are worth, Love adds.
“Everything has moved to a much more rigorous underwriting environment, and every datapoint in every application is verified, checked and documentation is gone over multiple times,” says Michael Fratantoni, vice president of single-family research and policy development at the Mortgage Bankers Association.
People with money are finding ways to buy properties, but in the first go-around, they are finding surprises. “The lenders want income statements. They want to check with employers directly on people’s work record, and they want to see people who have been in jobs for awhile,” Love says. “That’s not something our wealthy buyers can always show.”
To be sure, it’s first-time buyers and people with moderate incomes who are having the most trouble getting credit, Fratantoni says. But this is a dramatically different lending environment no matter what income strata you are in. The MBA’s index on mortgage credit availability has risen slightly over the past year, but it’s nothing like it was prior to the crash. The MBA’s credit availability index is just two years old. But it calculates that home financing would have been eight times as easy in the years leading up to the housing collapse.
Still, some lending has thawed a bit. The MBA says there has been some recent easing up on loan requirements, and wealthier borrowers have benefited the most: Even borrowers without high incomes are starting to qualify based on healthy savings and high credit scores alone. “They have a better chance, but not every lender is willing to do that,” Fratantoni says. “It might require some shopping around.”
But even as the housing market improves, loan originations overall are expected to drop by 10 percent this year versus last, according to the MBA. Banks remain reluctant to part with their own reserves, even though they are flush after five years of easy money from the Federal Reserve. Fratantoni says the change in credit availability reflects the banks’ more prudent lending and the elimination of “no-documention” and “interest-only” loans that led to many of the foreclosures in the real estate crash.
Also, bad loans of all shapes and sizes are still working their way through foreclosures and court proceedings. Just this week, prosecutors in New Jersey filed charges against one of television’s “Real Housewives of New Jersey,” Teresa Giudice, and her husband Giuseppe “Joe” Giudice, who were charged with falsifying income data on $2 million in home mortgages dating back to the early 2000s when standards were loose.
Financial regulators are also pushing for controls to avoid the excesses that led to the crash. The new Consumer Financial Protection Bureau has been pushing for a limit on borrowing when a debt-to-income ratio exceeds 43 percent, although Congressional opponents worry it will “reduce access to credit that qualified borrowers need to buy homes,” according to a press release issued by members of a House Financial Services subcommittee.
Lending experts say consumers need to be well-prepared to deal with the stringent process when they seek loans. Documentation is important, sometimes in the form of a letter from an employer. People seeking mortgages should also be prepared to shop for deals. Different lenders have much different standards. Down payments are rising for many loans, with 20 percent to 30 percent equity required from private lenders. For those who qualify for FHA loans, the down payment is 3.5 percent, but requirements for the federal lending program are stringent. Two years in a job and a credit score of 620 or better are needed, and costly mortgage insurance adds more than a percentage point to the lifetime cost of the loan. For wealthy buyers, FHA loans don’t help much since they are capped at $625,000.
The high-end lending market is slowly recovering, though, and private lenders are extending credit for the well-heeled while avoiding the starter-home set that can borrow through government programs. “It’s more work but things are getting done,” says Love, whose clients are mostly those with enough money to afford a second home. “We are very busy this summer, and we haven’t even gotten to the peak period [at summer's end when people often buy vacation homes.]“
Biltmore’s Vernon says his firm has been busy getting loans for wealthy clients who borrow against their investment portfolios. The rate of borrowing in so-called margin accounts has reached near the all-time highs just before the 2008 market crash. That strategy is attractive because such arrangements offer rates as low as 1 percent and sometimes even less, and they require no additional down payment because the banks hold the securities that back up the loans. “It’s almost no risk to the banks because the securities are pledged as collateral,” Vernon says.
The downside is that if the securities fall in value, the borrower’s assets can be liquidated. Vernon says he advises caution and recommends such borrowers keep “back-up emergency funds” like a home equity credit line. The rates can also increase as overnight bank-lending benchmark rates rise.
MBA’s Fratantoni worries that a further increase in interest rates could cause problems for borrowers at all income levels. “People’s credit has been getting better since the crisis,” he says. “But any time you see a rapid increase in rates, anything tied to variable rates has some additional risk.” Bankers and consumer advocates find themselves in rare agreement on the issue. Easing loan terms too much could be risky for banks and borrowers.
Biltmore Capital Advisors’ Tyler Vernon is named a New Jersey Five Star Wealth Manager by New Jersey Monthly Magazine!
Press Release: Biltmore Capital Advisors – Thu, Apr 11, 2013 9:00 AM EDT
PRINCETON, N.J., April 11, 2013 /PRNewswire/ — Biltmore Capital Advisors president and CIO, Tyler Vernon, receives ranking among New Jersey Monthly Magazine’s 2013 Top Wealth Managers.
The list recognizes the efforts and success of financial professionals across the state. The award is presented by New Jersey Monthly Magazine that engaged Five Star Professional, an independent research company, to perform research and rankings of Wealth Managers in New Jersey.
“It is a tremendous honor to be ranked as a Five Star Wealth Manager,” says Vernon. “My team and I strive to consistently deliver outstanding service and investment advice, and this award underscores our ongoing efforts.”
Mr. Vernon is president and Chief Investment Officer at Biltmore Capital Advisors. Mr. Vernon founded the Princeton, NJ-based firm after spending nearly a decade working on Wall Street. Biltmore Capital Advisors specializes in investment planning and management, with a particular focus on alternative investment strategies. Mr. Vernon is often featured by the national media, including on CNBC, Fox Business, Bloomberg, and in the Wall Street Journal.
Vernon was featured in the January 2013 issue of New Jersey Monthly Magazine. Vernon was also recognized on the 2011 list.
About Biltmore Capital Advisors
Biltmore Capital Advisors is a SEC-registered investment advisory firm headquartered in Princeton, NJ. Tyler Vernon is Chief Investment Officer of the firm, which employs “family office” services and fiduciary oversight for high net worth clients, endowments and foundations.
For more information on Biltmore Capital Advisors and its offerings, please visit
CONTACT: Marissa Foy for Biltmore Capital Advisors at 610-228-2104 or
Award candidates were then evaluated against 10 objective eligibility and evaluation criteria associated with wealth managers who provide quality services to their clients such as client retention rates, client assets administered, firm review and a favorable regulatory and complaint history. Five Star Professional finalized the list of Five Star Wealth Managers to be no more than 7% of the wealth managers in the area.
• Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers.
• The Five Star award is not indicative of the wealth manager’s future performance.
• Wealth managers may or may not use discretion in their practice and therefore may not manage their client’s assets.
• The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine.
• Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future.
For more information on the Five Star award and the research/selection methodology, go to www.fivestarprofessional.com
By Richard Satran September 7, 2012
The love fest of the political convention season ended almost as soon as it began, when the first prime-time speaker, House Speaker John Boehner, set a Republican agenda that “starts with throwing out the politician who doesn’t get it, and electing a new president who does.” Since then, the two parties have launched into a brawl in which few rules apply, and flame-throwing and facile lies are standard gear.
The loser could well be you and your stock portfolio over the next two months. Much of the heated rhetoric will consist of Republican claims that President Obama mishandled the economy or Democrats saying how they believe Mitt Romney’s programs would hurt people more.
In that kind of environment, investor confidence, already low, could sink further, say some analysts. Fund company T. Rowe Price said in its recently monthly report, “investors are focused on an apparently never-ending eurozone crisis and the campaign rhetoric emanating from both major political camps in the U.S.”
Good-time elections now history. Historically, election years have been good times for investors. But over the past five elections, the Dow has fallen an average of 3.72 percent, and declined in four out of five September-to-November election day periods.
“The past several presidential elections, and politics in general, just keep getting more nasty,” says Tyler Vernon, chief investment officer and co-founder of Biltmore Capital Advisors in Princeton, N.J. “It’s not the way things were 25 years ago. Over the past few cycles, it has become much more negative. With Democrats and Republicans, the attack ads are questioning leadership more and more. It hurts investor confidence.”
The perception that advertising is growing more negative is borne out by numerous studies. A recent one by the Wesleyan Media Project showed negative ads rising by a staggering amount—accounting for 70 percent of all presidential advertising in the early few months of this year, compared with just 9 percent in the 2008 period (although other factors, including fewer positive ads run by groups supporting Obama in this cycle, caused some of that shift.)
The big difference over the past four years is that so-called Super PACs have been freed from spending limits, or even listing contributors, and the Big Money advertising has been overwhelmingly negative, the Wesleyan study showed.
Politicians have always had a penchant for painting a negative picture of their opponents—some remember President Johnson’s vivid black-and-white television ad showing a girl picking a flower as a nuclear mushroom cloud appeared behind her, a slap against his opponent Barry Goldwater’s strident anti-Communism, or George H.W. Bush’s ads accusing Massachusetts governor Michael Dukakis of furloughing a convicted murderer, Willie Horton, who embarked on a violent crime spree.
Those negative campaigns, though memorable, were not the norm. The LBJ ad was quickly withdrawn. And ads were often about “finding prosperity,” rather than slamming the economy, Vernon says. From 1900 to 1988, the market scored nearly twice as many gains as losses in the September-through-November election span. The Dow gained in 15 of the years and declined in eight. The average September-to-election gain was 1.7 percent, exactly in line with the average gain for all two-month periods since 1900.
Impact of financial crisis. The most recent election losses can be blamed at last partly on the crash of 2008, which was an election year event, although election years of the past also had some ugly Octobers, including the 1932 pre-election period in which stocks plunged 20 percent.
But the rising importance of the economy as an election factor and a surge in negative advertising are also playing a critical role, studies show. It’s not just your imagination; things really have gotten uglier since the days of Ike and Adlai, or even since Bill Clinton and George Bush the First.
The Google Ngram tool, which measures and displays keywords in publications going back to 1800, shows a dramatic “hockey stick” upswing in the term “negative political advertising” after 1988. It also shows the steady rise of the phrase “the economy” in the national dialogue. Social issues and foreign policy have faded, in relative terms.
The issue-oriented negative ads might be even more effective at swaying voters than obvious personal attacks, suggested one study by two Rutgers professors and one from George Washington, “The Effects of Negative Campaigning, A Meta-Analytic Reassessment.” They saw significant potential for the practice to undermine public sentiment.
“When that happens, people spend less, they don’t hire, they don’t buy homes,” says Vernon.
The focus on business issues likely reflects the fact that many of the Super PAC contributors are wealthy and tend to be most interested in issues affecting their financial standing. Supreme Court rulings in 1976 and 2010 affirmed a free-speech right to spend one’s money on political campaigns without limit, freeing wealthy contributors and candidates of key post-Watergate campaign reforms. Many politicians began shunning matching funds to give them more fund-raising freedom.
What investors are doing. “A lot of people are just incredibly confused about the economy, and they are like deer caught in the headlights,” says Vernon. “The campaign promises and attacks are not helping. There is always uncertainty about elections, but it is really magnified this time. The leadership, both Democrat and Republican, acts like they are in kindergarten when it comes to getting things done. They prefer to do things that are right for the party, not for the country,” citing the near shut-down of the federal government over the disagreement on extending the debt ceiling.
Still, the market responds to influences well beyond the scope of any election, and there’s no doubt it’s been surprisingly strong in the August through early September period with the S&P returning to prerecession highs. But economic indicators, like the latest ugly jobs report, are still weak. “It’s hard to get really excited about the market when all that really gets it going is the chance for easier Fed policy,” says Vernon.
He is advising his own clients “to stay long, but stay hedged.” He advises a balanced portfolio and a long-term view. Studies in the past have shown that the market does worst during the first two years of a presidential term, and tends to do better the second two years.
While stocks have performed poorly in recent pre-November periods, bonds have been generally stronger, gaining in price and offering steady yield.
“From now to the election, bonds will be a fairly good place to be,” Vernon says. “People do not want to invest in riskier things when there is a high level of uncertainty. And there is a lot of that out there now.”
By Kaitlyn Kiernan 01/04/12 – 04:20 PM EST
NEW YORK (TheStreet) — The Dow Jones Industrial Average shot into positive territory Wednesday as commentary from the Federal Reserve on plans to shore up the U.S. housing market overshadowed European debt crisis concerns.
The turn higher came after the central bank sent a white paper to Congress calling for the federal government to take more action to stabilize the still-floundering U.S. housing market. The paper suggests “redeploying foreclosed homes as rental properties” as a possibility for combating an expected flood of foreclosures hitting the market and prompting another pricing swoon.
“Continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery,” the paper said. In a letter to lawmakers on the Senate Banking and House Financial Services committees, Fed chairman Ben Bernanke wrote, “Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery.”
2012 Stock Predictions and Outlook
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Concerns about Europe’s sovereign debt crisis resurfaced Wednesday with early declines underlined by fresh worries that the situation in Spain is worsening. The Iberian country is considering applying for loans from the eurozone bailout fund and the International Monetary Fund to help the restructuring of its banking industry, the Spanish newspaper Expansion reported, citing anonymous sources.
Also, overnight deposits of commercial lenders hit a record high at the European Central Bank, suggesting that Europe’s banks remain incredibly cautious about lending to each other. Shares of UniCredit, Italy’s largest bank, sank 14.5% after the lender said it will sell $9.8 billion worth of new shares to boost capital.
Investors are also sensitive to rising borrowing costs in the eurozone with a France holding a bond auction on Thursday, and Italy and Spain about to sell debt next week.
Germany’s DAX lost 0.89% while London’s FTSE was down 0.55%. Overnight, Japan’s Nikkei Average settled 1.24% higher, and Hong Kong’s Hang Seng was down 0.8%.
“We are holding very neutral until we get some better volume trading and a better sense of what investors are going to do,” said David Ader, rates strategist at CRT Capital Group. “On the surface we have mixed to bearish technicals, better data and some degree of calm in Europe.”
The U.S., however, received another piece of positive economic data. The Commerce Department reported that U.S. factory orders rose 1.8% in November after a 0.4% fall in October, slightly beating the 1.7% forecast of economists polled by Thomson Reuters. Meanwhile, General Motors(GM_), Ford Motor(F_) and Chrysler Group beat analysts’ estimates for December car sales, with sales getting a boost from increasing consumer confidence and ads around the holiday season.
GM said that its December sales rose 5%, led by a 9% gain at Chevrolet. For the full year, GM sales rose 14%, to more than 2.5 million vehicles, and GM gained market share. Ford said that its car sales rose 10% last month and 11% for the year. Meanwhile, Chrysler’s sales jumped 37% in December. GM traded 0.5% higher while shares of Ford rose 1.5% on Wednesday.
In other corporate news, Yahoo!(YHOO_) tapped PayPal President Scott Thompson, who runs eBay’s (EBAY_) online payments unit. Yahoo! had been without a permanent CEO since firing Carol Bartz in September. Shares fell 3.1% to $15.78.
A big mover in afternoon trades was Eastman Kodak(EK_) following a report that the 132-year old company is preparing to file for bankruptcy in the “coming weeks if it fails to sell its patents. The report from The Wall Street Journal, which cited anonymous sources, comes after months of speculation that the company was preparing to take this step. Kodak shares tumbled 28% to 47 cents.
Jefferies Group’s(JEF_) executives and other employees at the company’s prime-brokerage unit threatened to leave the firm in a dispute over issues including a recent restructuring and year-end compensation, The Wall Street Journal reported, citing people familiar with the matter.
Jefferies executives and its global head of prime brokerage, Glen Dailey, reportedly held meetings Tuesday to discuss the issues but Dailey said that no one was leaving, adding that the “family affairs are now in order.” Jefferies in recent weeks has seen its stock under attack over its European exposure. Shares slipped 2.6% to $13.64.
Acme Packet(APKT_), a networking-equipment maker, lowered its outlook for the fourth quarter. The company, whose products include both hardware and software, now sees non-GAAP earnings of 26 cents to 28 cents a share for the three months ended Dec. 31 on revenue ranging from $84 million to $86 million. The current average estimate of analysts polled by Thomson Reuters is for a profit of 37 cents a share in the quarter on revenue of $93.4 million. Shares plunged 19% to $25.70.
With most of the day’s trading in negative territory stocks barely hung on to Tuesday’s strong New Year’s rally, which saw the S&P 500 index finish at its highest level since late October. The Dow, up 1.5%, closed at its highest since July 2011.
Analysts think that the S&P 500 will gain 6.6% by the year’s end, compared with a flat finish for 2011, according to polls by Reuters. Investors are now looking carefully at how stocks perform the first days into the new year, as track records show that positive momentum in January often translates into a bullish year overall.
“Transports and technology stocks could help the market in the beginning of the year,” noted Tim Ralph, portfolio manager at Biltmore Capital Advisors. Both sectors benefited from online shopping in the holiday, explained Ralph. “We could see strength here later this month and in early February.”
February oil futures settled up 26 cents to $103.25 a barrel, while February gold futures gained $12.20 at $1611.90.
The dollar index was up 0.5%. The benchmark 10-year Treasury was down 12/32, pushing the yield to 1.991%.
– Written by Kaitlyn Kiernan in New York.