Tapping Your Mortgage for Cash Faces New Restrictions
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What immediate news headlines set the stage for this money briefing?
Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York. The government is about to put some restrictions on the amount of cash that borrowers can withdraw when refinancing their mortgage. We'll explain in a moment. First, some money and market news that you should know. Data from the Experian credit reporting company that was reviewed by The Wall Street Journal indicates the American middle class is falling deeper into debt to maintain a middle class lifestyle. While incomes have remained stagnant, the costs of cars, college, houses, and medical care have steadily increased, and consumer debt has climbed to $4 trillion, that's not including mortgages, and the debt level is higher than it has ever been.
Put another way, the Census Bureau says at the end of 2017, median household income in the U.S. was $61,372. When you add in inflation, that puts median income about at the level it was in 1999. And businesses aiming to hire talent for artificial intelligence jobs have found success among an unexpected resource. That's people with autism. Companies like Ernst & Young, Dell, and Credit Suisse are hiring autistic applicants for AI jobs through neurodiversity programs that they've established. As the journal's John Mirosky writes, autistic workers are often hyper-focused, highly analytical thinkers with an exceptional proficiency for technology. Many are capable of working long hours on repetitive AI tasks without losing interest, such as labeling photos and videos for computer vision systems.
Others have a high capacity for logical reasoning and pattern recognition, enabling them to systematically develop and test AI models. And the talent is out there. A study by Drexel University shows that about 42% of autistic students who had special education in high school had no paid job in the first six years after leaving high school.
How is rising consumer debt and stagnant wages affecting the American middle class?
Homeowners have long been able to withdraw cash when refinancing their mortgages, but that's likely to change under new rules coming from the Trump administration. And Wall Street Journal reporter Ben Eisen is here with some details. So, Ben, this was much more common before the recession. But just to refresh our listeners, how did this work where borrowers could withdraw cash?
So when you think about a refinance, usually what you're doing is you're taking your old mortgage, you're trading it in for a new one. But what you can do in a lot of cases is you can trade in the old mortgage and take out a new one with a bigger balance. And you basically pocket that cash and you can use it for whatever you want. But it's basically adding the cash that you take out to the value of your mortgage.
And what we're talking about here are mortgages that are tied to the Federal Housing Authority.
Exactly. Yeah, this is the program mostly for first-time homebuyers.
Now, what are the restrictions that are expected to go into place in September?
So what's happening here is they're lowering the cap on what's allowable. So you used to be able to take out a cash out refi that was equal to 85% of the value of your property. Now it's only 80%. So it's a bit lower, which means you might not be able to take out as much cash if you have an FHA loan or are getting one.
And the ability to withdraw cash equal to 85% of the mortgage, that was being seen as a strain on the government mortgage program.
Yeah, so this is basically a government program where already the borrowers are a bit riskier. They have slightly lower credit scores. They're often using down payment assistance programs to get money together for a down payment. Their ratio of debt to their income is often higher. So when you take all those risks together and then you add on this risk of higher cash out refi balances, the FHA basically decided that's a risk that we're not really willing to take anymore.
And now the borrowers can't just take the money and run. I mean, the borrowers who withdraw cash here, they face a risk if their home value goes down.
Right, exactly. So when you think about a higher balance on your mortgage, it's not like that goes away if your home value goes down.
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