Freddie Mac Warns Your Home Can Be UnderWater Literally

IN THIS MORNING’S BRIEFING: Preparing for Climate Change; Millennials Rule; Home Prices Up, but Slowing:

Freddie Mac Prepares for Climate Change

Freddie Mac is planning for potential floods brought on by climate change. Freddie says:

“Insurance is an essential component of real estate transactions, and flood insurance currently makes it possible to obtain loans for homes in areas of identified flood risk.

Some of the varied impacts of climate change — rising sea levels, changing rainfall and flooding patterns, increasing temperatures — may not be insurable. As a result, some important features of housing finance may have to change.

A large share of homeowners’ wealth is locked up in their equity in their homes. If those homes become uninsurable and unmarketable, the values of the homes will plummet, perhaps to zero. Unlike recent experience, homeowners will have no expectation that the values of their homes will ever recover

In the housing crisis, a significant share of borrowers continued to make their mortgage payments even though the values of their homes were less than the balances of their mortgages. It is less likely that borrowers will continue to make mortgage payments if their homes are literally underwater. As a result, lenders, servicers and mortgage insurers are likely to suffer large losses.

“One challenge for housing economists is predicting the time path of house prices in areas likely to be impacted by climate change” says Sean Becketti, Chief Economist, Freddie Mac. “Consider an expensive beachfront house that is highly likely to be submerged eventually, although ‘eventually’ is difficult to pin down and may be a long way off. Will the value of the house decline gradually as the expected life of the house becomes shorter? Or, alternatively, will the value of the house — and all the houses around it — plunge the first time a lender refuses to make a mortgage on a nearby house or an insurer refuses to issue a homeowner’s policy? Or will the trigger be one or two homeowners who decide to sell defensively?”

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Home Pri¢e$ Rising, But Not By Quite As Much

Home prices rose 0.2% in February, from the previous month and are up 5.4% from a year ago according to the S&P/Case Shiller 20-City Index.

Thirteen cities saw slower annual gains in the three month period ending in February than the period ending in January.

While home prices have continued to appreciate much faster than wages are rising, the 20-City index remains about 12% lower than the peak last touched in 2006. It’s 36.3% higher than the 2012 low, however.

The strongest growth was in Portland, Seattle, and Denver. Growth in San Francisco, which had seen double-digit gains in recent months slowed down.

“Rising prices continue to be fueled by tight inventory of homes available,” said S&P Dow Jones Indices Chairman David Blitzer. “Even as Americans’ credit has improved, with mortgage defaults lower than in 2004, there aren’t enough homes to supply a healthy market.”

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DSNEWS: Not Worth the Risk: Regulators to Cut Incentive-Based Pay

In an attempt to prevent banks and other financial institutions from the excessively risky practices that led to the financial crisis and Great Recession, financial industry regulators are seeking comment on a proposed rule that would implement Section 956 of the Dodd-Frank Act and change compensation structures and align banks’ incentives.

The new proposed rule is a revision of a rule that was proposed in April 2011 and is developed jointly by six federal regulatory agencies: the Office of the Comptroller of the Currency, the FDIC, the Federal Reserve Board, the Federal Housing Finance Agency (FHFA), the SEC, and the National Credit Union Administration (NCUA).

“This rule has the ‘Duh’ factor of ATR (Ability to Repay) by requiring corporate boards to ‘conduct oversight’ of the incentive-based compensation programs for its executives and significant risk-takers,” said Eric Chader, SVP of the business advisory firm The Collingwood Group, GisermanGroupClient “The risk, however appears to be a pass-through to those executives, who are subject to clawbacks, deferrals, and forfeitures within the plans that had been approved by a compensation committee to begin with. This seems like misplaced accountability to me. Applied across all financial institutions, it probably won’t have the effect of shrinking the talent pool for executive positions — there are many other more substantial risks for potential candidates that would do that — like putting executives at the GSEs on the GS scale.”

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CBS News: Millennials Reach a Milestone

Baby boomers’ long reign over the kingdom of American demographics has finally come to an end: Millennials have officially surpassed them as the largest living generation in the U.S. That’s according to new population estimates released this month by the U.S. Census Bureau and analyzed by the Pew Research Center.

Millennials, defined by those born between 1981 and 1997, now number 75.4 million, a hair’s breadth past the 74.9 million baby boomers. Until this point, baby boomers, defined by those born between 1946 and 1964, have constituted the United States’ largest living generation and have carried enormous economic, political and cultural clout as a result.

Immigration is a huge factor behind this shift. Millennials now outnumber all other groups partly due to the number of immigrants between ages of 18 and 24 continuously entering the country. Meanwhile, baby boomers are aging and beginning to die out at a rate that exceeds the number of older immigrants arriving in the country.

Of course, millennials won’t dominate forever. The group is expected to peak in 2036 at 81.1 million. At that point — when the oldest millennials will be 56 years old — mortality is expected to outweigh net immigration gains and the population will dip below 80 million, according to the Pew Research Center.

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Redfin: Candidates May Not Be Able to Buy Your Vote, But Can They Buy Your Town?

Talk about your bidding wars. As the presidential candidates begin their final sprint toward the finish line, the election 2016 money marathon is just getting started. Collectively, candidates and their allies already have amassed more than $1.1 billion in political donations.

You can’t actually buy the White House, or the right to live there. Voters, not rich donors, make the ultimate call, and candidates can’t buy your vote, either. But with a billion dollars they could buy every house in East Hampton or Vail.

Campaign fundraising this year is on track to beat the $2.4 billion record set by the last race for 1600 Pennsylvania Ave. By the time ballots were tallied in 2012, politicians and their supporters had spent enough to buy every house in Key West, South Bend, Dayton or Dubuque.

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NYT: Trump Tower Acquires a New Allure, Even for New Yorkers

Since its debut in 1983, Trump Tower has belonged for New Yorkers to the same galaxy, if not the same constellation, as the Plaza, the United Nations and Donald J. Trump himself: part of the urban firmament, perhaps, yet largely irrelevant to daily life.

Not many city residents had ever cared to venture inside the 68-story building at Fifth Avenue and 56th Street, unless to visit the in-house Starbucks.

That was then.

With the ascent of its owner and developer as the favorite for the Republican presidential nomination, Trump Tower has attained some of the trappings of a true city landmark, drawing the same mix of scorn and reverence as its occupant in chief. It has the tourists, more eager than ever to see the celebrity candidate in his natural habitat; it has won the fleeting, semi-grudging attention of New Yorkers, who now regularly pause outside the doors for selfies.

And in a city that has never hesitated to unburden itself, it has become a 664-foot magnet for a series of protests large and small, the slightly more verbal equivalent of one long Bronx cheer.

It is an unlikely — and unruly — bit of urban theater for a block better known for Audrey Hepburn’s early-morning window-shopping, just next door, in “Breakfast at Tiffany’s.”

In September, a protester dressed in a Ku Klux Klan-style hood and carrying a “Make America Racist Again” sign scuffled with Trump Tower security guards. In December, roughly 200 more protesters marched there.

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When the media needs an EXPERT it turns to GisermanGroup, Shouldn’t Your Business?

Personal lenders promise online-only mortgages, without having to talk to a rep

Mortgages are available from some marketplace lenders, which do the bulk of their business in unsecured personal loans. These home loans are pitched to borrowers who want a completely online experience.

Marketplace mortgages are for technophiles of all ages who want a more streamlined process, says Tim Rood, chairman of The Collingwood Group, GisermanGroup client. “A lot of folks would prefer not to talk to a representative,” he says. “Ultimately, that’s not a generational issue.”

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Less Confidence

Consumers are feeling less optimistic, the Consumer Confidence Index hit 94.2 in April, according to The Conference Board. That’s lower than the 96 expected by Thomson Reuters consensus estimates.

“Consumer confidence continued on its sideways path, posting a slight decline in April, following a modest gain in March,” said Lynn Franco, director of economic indicators at The Conference Board.

Compared to March, fewer people told The Conference Board they saw “good” business conditions and “plentiful” jobs in April, the survey found.

FED Meeting Ends Today — Will Yellen & Co. Tilt Toward Raising Rate

The FOMC is expected to leave open the possibility of a rate hike at its next meeting in June, economists said, but try to do so in a way that does not upset financial markets.

The Fed policy committee will release a statement at 2 p.m. ET , no news conference by Fed Chairwoman Janet Yellen is scheduled. Economists do not expect the Fed to raise rates at this week’s meeting. But, the Fed may will leave the door open for a move in June.

The Fed has penciled in two rate hikes this year but forecasters barely expect one move.

>Still Ahead for this busy day and week:


Pending Home Sales 10am ET

FOMC announcement 2pm ET


Consumer Confidence for last month due at 10am ET

Have a Prosperous day ahead.

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