THE NATIONAL HOUSING MARKET IS RECOVERING
Home prices in the United States ended the year up 5.9% over the previous year. Phoenix Arizona leads the charge, up 22.5% (housingwire.com). Appreciation experienced in Phoenix in 2012 is not likely to be sustainable but should outpace the national average for some time to come. National appreciation should remain modest (3%-5%) as the economy continues its recovery. Demand is still very high, and inventory remains low in many cities.
HOUSING – THE DRIVING FORCE TO ECONOMIC RECOVERY
“Homebuilding activity will likely remain the strongest growing component of the economy in 2013,” said Keith Hembre, chief economist of Nuveen Asset Management. “After several years of excess supply, demand and supply conditions are now in much better balance.” (cnnfn.com)
NEW MORTGAGE REGULATION MAY ELIMINATE BORROWERS
As mandated by Dodd-Frank, the CFPB issued the 804 page Final Rule on the Qualified Mortgage (QM) on January 10th, 2013. The QM is part one of two bodies of regulation that will define what mortgages will be originated. The QM will take effect January 10th, 2014.
The QM prevents mortgage companies from securitizing high risk loans such as “no doc” and negative amortization loans. Those high risk loans had been eliminated by the industry years ago due to the mortgage and housing crisis. The CFPB is making sure they never come back. There are two parts of the QM that have the biggest potential to impact many future home loan borrowers.
1. 43% maximum combined debt to income (DTI) ratio: Many low income and self-employed borrowers currently exceed 43% DTI. Note: There is a 7 year exemption that if the loans meet Government or GSE (Fannie & Freddie) underwriting standards, the DTI may exceed 43%.
2. Lender fees to be capped at 3% of the loan amount: For many 3% would seem adequate or even excessive, but fixed fees (i.e. underwriting, processing, etc) that do not change based on the loan amount average $750 to $1,500. Also, all loan officer / mortgage broker compensation, paid by the consumer or the lender, is included in the 3% cap. Example: A $100,000 loan amount with an $800 underwriting fee would leave $2,200 to be split between the mortgage lender, loan officer and loan processor. A $50,000 loan amount with an $800 underwriting fee would leave $700 to be split by the remaining parties. Low loan amounts may be deemed not profitable enough to originate. The cap on lender fees may eliminate smaller loan amounts which would impact lower income borrowers, and neighborhoods.
Fortunately the CFPB is leaving the Final Rule open for discussion. With any luck, the Final Rule may not be so final after all.
More concerning is the Qualified Residential Mortgage (QRM) which will be issued soon. Loans that do not meet the QRM requirements will require the lender to retain 5% of the loan balance in reserves for the life of the loan. Which means, the vast majority of the mortgage industry will not offer loans that do not meet QRM requirements; not even the big banks. Those that do will likely charge up to 3% over the going rate to originate these loans. The initial proposal of the QRM contained the following requirements:
1. Maximum debt to income of 36%.
2. Maximum loan to value of 80% (requiring 20% down on a purchase and 20% equity on a refinance transaction).
If the initial proposal took effect today, the housing market would be devastated, and consumer choice could be limited to the Big Banks. We are hopeful that revisions are made, or very large exemptions are put into place.
CFPB ISSUES FINAL RULE ON LOAN OFFICER COMPENSATION
Viewed as a minor mortgage industry victory, the CFPB issued the 541 page Final Rule on loan officer compensation on January 20th, which becomes effective June 1st, 2013.
While loan officers will still not be able to vary their compensation on a transactional basis or due to a “proxy” (i.e. purchase vs refinance, conventional vs FHA), loan officers will be able to be compensated when the consumer pays the mortgage company directly, and the loan officer may lower their compensation to cure unforeseen errors and overages.
LAS VEGAS HOUSING IS ROCKING
“There were 5,544 new home sales in the Las Vegas Valley in 2012, up 42 percent from a record low in 2011, according to Home Builders Research.” (housingwire.com)
MOST EXPENSIVE HOUSE IN THE UNITED STATES
You probably guessed it, the White House. Zillow estimate that the White House is worth $294.9 million. (housingwire.com)
FORECLOSURES CONTINUE TO FALL
Approximately 1.2 million homes are in foreclosure. This is an 18% reduction from the previous year.
“The five states with the highest number of completed foreclosures for the 12-month period ending in November included California (102,000 foreclosures); Michigan (75,000); Texas (58,000); and Georgia (52,000). These states account for 50% of all completed foreclosures nationwide.” (housingwire.com)
MORTAGE DEBT FORGIVENESS ACT EXTENDED
As part of the fiscal cliff debacle, the Mortgage Debt Forgiveness Act was extended through 2013. The law was originally passed in 2007 with a five year sunset provision. The Act allows some homeowners protection against paying taxes on unpaid mortgage debt on a short sale transaction. The extension will fuel short sale transactions in 2013, and help further reduce the number of mortgage foreclosures.
BANK OF AMERICA GETS WACKED AGAIN
Bank of America has reached a settlement agreement to pay Fannie Mae $10.3 billion and repurchase 30,000 “questionable” mortgages for $6.75 billion. The settlement is the result of bad loans that were originated by Countrywide Financial and sold to Fannie Mae between 2000 and 2008. Bank of America repurchased $2.87 billion in loans in 2011 from Freddie Mac that were originated by Countrywide. Bank of America acquired Countrywide in 2008 for $4 billion. Can anyone say “buyer’s remorse?”
INTEREST RATES ON THE RISE
On Monday, January 28th, 10 year treasury bonds broke a yield of 2.0% for the first time since April of 2012; pushing interest rates up. Is this going to be an ongoing trend? Since the beginning of the year, interest rates have slowly, but consistently moved higher. More positive economic news will be needed to force rates up substantially, but with the increasingly positive news that has been coming out, it is likely that rates will be on a slow gradual climb. The Federal Reserve has also hinted that it may be ending its bond buying program, which will increase interest rates. The 30 year fixed rates will likely break 4.0% this year; just a question of when.
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Interest rates as of 01/29/2013. Conforming interest rates. Interest rates and APR based on loan amounts not to exceed $417,000. Loan to value not to exceed 80%. 720+ credit score. Owner occupied only. Purchase and rate in term refinances. Not all applicants will qualify. Call today for your individual scenario rate quote. Published rates do not apply to HARP loans.
LENDING TURN TIMES
Conventional Purchase: <30 Days
Government Purchase: <30 Days
Conventional Refinance: 30-45 Days
Government Refinance: 30 Days
HARP Refinance: 45-120 Days
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Geneva Financial, LLC.
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