Top lenders forecast housing market gains SAN FRANCISCO – Nov. 22, 2013 – Prepare buyers for heavy documentation requirements starting in January, according to CEOs and senior executives from the biggest names in mortgage lending at the recent National Association of Realtors® (NAR) annual convention. New regulatory hurdles could temporarily restrict lending to some buyers, but their effects will likely even out over time. The Qualified Mortgage (QM) or ability-to-repay rule becomes effective in January and contains a number of underwriting standards that will constrict mortgage availability and deny credit to some first-time homebuyers. The QM rule requires significant documentation from consumers to justify lenders’ underwriting decisions, and lenders face strict penalties if a loan is made outside the specific criteria. Among the new rules: Borrowers can still get a private loan, as long as the loan does not have risky features and the borrower’s total debt to income (DTI) isn’t over 43%. This means that a borrower’s total debt expense (including total mortgage payment) does not exceed 43% of their gross income (before taxes are withheld). The lower DTI, however, means some buyers will be offered less mortgage money than they were this year. Origination fees can’t exceed 3% of the loan, and affiliate fees and points count towards the 3% cap. This could create a problem for lower-income homeowners, however, since many closing costs are fixed: 3% of $50,000 is significantly less than 3% of $300,000. Some of the riskier loans offered before the housing slowdown won’t be allowed, such as interest-only, negative amortization and balloon house loans. Kevin Watters, CEO of JPMorgan Chase, said that lower- and moderate-income buyers, as well as some self-employed buyers, might have a tougher time in the new lending environment. “We need to work together to help first-time buyers into affordable housing options,” he said. “It’s important for Realtors to be educated about the new documentation requirements so they can work with buyers and meet lender expectations,” added Matt Vernon, home loan sales executive for Bank of America. NAR CEO Dale Stinton asked the lenders whether they fear the risk of mortgage security “putbacks” and if that fear impacts underwriting. A putback occurs when a bank misrepresents the creditworthiness of a borrower to the entity that buys the loan – such as Fannie Mae and Freddie Mac – and the bank is forced to buy back the mortgage. Watters said fears over putbacks are real and Mike Heid, president of Wells Fargo Home Mortgage, agreed. “The putback fear is still there, and we’re working to put it to rest,” said Heid. “The time is right for that. If the government-sponsored enterprises (Fannie Mae and Freddie Mac) weren’t in conservatorship, the issue of putbacks wouldn’t be there. We need a world where everything is more of a natural market, and we need competition with Fannie Mae and Freddie Mac. The conservatorship should end.” Thomas followed up by asking whether immediate steps should be taken to reduce the government’s role in the housing finance market. Emerson said that the security offered by their federal guarantees needs to stay, but not the actual government entities. “I think if we want the 30-year fixed-rate mortgage, you need the government guarantee,” said Watters. “The 30-year fixed-rate mortgage needs the government guarantee because not all banks can soak up the size of the market.” When asked whether private investors are ready to take a bigger role in the secondary mortgage market as the government’s footprint shrinks, the executives provided varied responses. Heid said that more certainty is needed before taking action. “We’ve already started to do some private label securities,” said Watters. “People are getting back into the marketplace, which is a good thing. We might not be ready to take it all on, but we are headed in the right direction.” The lending leaders unanimously agreed that consumers will see a healthy increase in the market next year, keeping pace with gains made in 2013. Mortgage originations will dominate the 2014 housing market as interest rates creep up and refinancing trends downward. Heid said that while home values will continue to increase as the market continues to heal, the economy is the wild card and another downturn would be a game changer. “In spite of the economic crisis, Americans still want to be homeowners. That hasn’t changed one bit,” he said. “Homeownership is at the heart of what we do, and that is worth preserving.”
Posted on: Fri, 22 Nov 2013 22:12:48 +0000
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