CNBC: Home Mortgage Lenders Easing up on Home Loans

The new year may bring new opportunities for consumers hoping to get a home mortgage.  More lenders are reporting easing credit standards, according to Fannie Mae, and expect standards to ease rather than tighten in the near future.

This could help affordability in the housing market, which has been suffering under both tight credit and tight supply of homes for sale.

The share of lenders who expect to ease standards for government-backed loans rose to 16 percent, and the share expecting to tighten fell to 2 percent, according to a Fannie Mae survey. This is across all types of loan products.  A total of 213 senior executives completed the survey from Nov. 4 to 13, representing 194 lending institutions.

“These current practices and expectations toward easing among lenders compares to a historically relatively tight mortgage credit standard base,” said Doug Duncan, senior vice president and chief economist of Fannie Mae.  Duncan, however, points to several challenges to improvement in the housing market in 2016, affordability for first-time buyers topping the list. There are still very few starter homes on the market, and home price appreciation is lapping household income growth. “Lenders’ thoughtful easing of credit standards should help mitigate some of this affordability decline,” he said.

The potential for rising interest rates, which would narrow the field of customers for loans, may increase competition among lenders and force them to ease some of the extra safeguards they added after being sued by the government for billions of dollars over bad loans dating back to the last housing boom.

Government-sponsored enterprises Fannie Mae and Freddie Mac as well as the Federal Housing Administration have been clarifying lender liabilities for bad loans and have been pushing lenders to ease up as well.

Borrowers may also benefit from a new credit scoring model. Fannie Mae announced recently that it will start using so-called trended data in looking at mortgage applicants. This is a wider look at a borrower’s credit history, which could help boost some scores.  Using trended data, the percentage of consumers in the super-prime risk tier would increase from 12 percent of the population to 21 percent, according to a recent study by TransUnion. These consumers generally have the greatest access to new loans at the lowest pricing.

“We are a long way from returning to prerecession levels in terms of mortgage accounts, but changing consumer preferences for housing also may play a role in this slow recovery,” said Steve Chaouki, executive vice president and head of TransUnion’s financial services business unit. “If the economy continues to perform well, we believe the net number of mortgages will increase over the next year.”  Despite the potential easing in credit, about two-thirds of consumers surveyed by the National Association of Realtors think it would be very or somewhat difficult to get a mortgage today.

Another survey by Berkshire Hathaway HomeServices, a network of real estate brokerages, polled 2,500 homeowners and potential buyers and found 67 percent of potential homebuyers thought mortgage rates today were either “average” or “high.” Today’s rates are actually very close to record lows.

courtesy of:  Diana Olick, CNBC and

IVAN SOLIS, JR.  / Sr. Sales Executive, Title 365 / Ivan.Solis@Title365.com  / (619) 804-9000

3 Major “Need to Know’s” About The 2014 Housing Market

The following list was put together by a veteran housing economist, asked by HousingWire for his opinion on the near-term future of the markets we cover daily.

(David Berson is the chief economist at Nationwide. He leads a team of economic analysts delivering economic forecasts and analyses that are used to inform and strengthen the organization’s business strategies and operating plans. Prior to joining Nationwide, David served as the chief economist at The PMI Group and for Fannie Mae.)

Here’s David Berson’s take on the 3 things you need to know about housing in 2014.

No. 1: 2014 should prove to be the strongest year for housing activity since before the Great Recession.

Housing activity (home sales and housing starts) has increased modestly over the past several years, but is still at levels well-below sustainable trends. For both economic and demographic reasons, 2014 should be the year when activity reaches the highest level since 2006/2007.

Propelling home sales are job growth and housing affordability. The latter reflects the interplay of household income, mortgage rates and house prices. In 2013, while housing activity picked up, it was a year when job growth remained low and virtually unchanged from the previous year.  Moreover, affordability, while still high, fell sharply in the second half.

Most economists expect an improved job market in 2014, with employment growth accelerating and the unemployment rate continuing to decline. That jobless rate drop will reflect more of a pickup in employment than further declines in the labor force participation rate. This will be the key factor improving housing demand this year, even if mortgage rates rise and affordability declines. While the housing market tends to do especially well when the job market improves and mortgage rates decline simultaneously, that combination of events occurs only rarely.

More often, either job gains accelerate while mortgage rates rise, or job gains decline while mortgage rates drop. Typically, housing activity expands in the former case and contracts in the latter. People buy homes when their job and income prospects improve – even if it’s more expensive to do so – rather than buy when it is inexpensive to do so but they’re worried about keeping their jobs.

No. 2: Demographics should start to favor housing activity.

The demographic factor most affecting the housing market is household formations. Newly formed households may buy or rent, but they reside somewhere as an independent unit. On average, roughly 1.2 million households form every year in the United States and they each demand a housing unit. Household formations are affected by the job market, as people “double-up” when worried about their job and income-earning prospects. The Great Recession and the modest job recovery in the years following induced many people who might have lived independently to move in together. That’s most noticeable in the rise in the share of young adults living with their parents, primarily because of the weak job recovery.

Reflecting the slow pace of household formations, there is an increasing pent-up demand for households. After all, most of these young adults would prefer the freedom of being on their own (and their parents really don’t want them as full-time residents, either). We estimate the economy is short by more than three million households.

If the economy expands at a faster pace this year, bringing a more rapid rate of job creation, that should translate into more households, raising housing demand. We won’t see all three million missing households return to the housing market at once. (That wouldn’t be a good thing for the housing market anyway, since that would be on top of the 1.2 million households that normally would develop this year; such a surge would swamp the existing housing supply). Beginning in 2014, the pace of household formations should accelerate to an above-trend pace for several years, pushing up housing demand.

No. 3: Mortgage availability shouldn’t worsen and may improve.

Mortgage credit isn’t nearly as easy to get as it was during the housing boom, and it shouldn’t be.  Still, compared with recent years, mortgage availability has increased slightly. And reasons exist for mortgage availability to be no worse in 2014 than in the past few years. Actually, it may be somewhat easier to get a mortgage loan.

With the dislocations in mortgage lending since the housing bubble popped, Fannie Mae and Freddie Mac have increased their share of the mortgage market significantly. When combined with lending from the Federal Housing Administration and the Veteran’s Administration, the government or government-sponsored share of mortgage lending has climbed to more than 90 percent in recent years. That is an untenable situation in the long run, but is unlikely to change much this year.

The good news is that new Qualified Mortgage lending rules from the Consumer Financial Protection Bureau exempt home mortgages that qualify for purchase or securitization from Fannie and Freddie. As a result, mortgage lenders won’t have to tighten their mortgage-underwriting requirements in response to QM as long as they sell their loans to the GSEs.

Additionally, the rise in mortgage rates already has reduced mortgage origination volumes as refinance activity declines. If mortgage rates rise further this year, as expected, then refinance activity will fall still more. In response, mortgage lenders probably will ease lending standards to the extent possible under the QM rules to boost lending activity by increasing purchase originations. As a result, the increase in new households expected to be created this year, spurred by a stronger job market, should find that qualifying for a mortgage loan will be somewhat easier in 2014 than in prior years.

courtesy of:  http://www.housingwire.com/

Real Estate Predictions for 2014 – NY Times

The coming year is expected to be a little kinder to home buyers. While affordability will continue to be a problem in hot markets like New York and San Francisco, buyers in general may find they have more homes to choose from and more lenders vying for their business.

Here are some likely trends to watch in 2014.

MORTGAGE RATES CONTINUE TO CLIMB.  As the economy improves and the Federal Reserve winds down its monetary stimulus, mortgage rates will rise to reflect that lack of stimulus, said Erin Lantz, the director of mortgages at Zillow.com. She predicts 30-year fixed-rate loans will hit 5 percent for the first time since 2010. That’s still historically low, and rising rates are a sign of a stronger economy.

“Higher rates would go hand in hand with higher employment, increasing incomes — changes that are increasing household purchasing power,” said Jed Kolko, the chief economist of the real estate website Trulia.

LENDERS LOOSEN UP, A LITTLE.  Rising rates will also mean fewer borrowers seeking to refinance out of higher-priced mortgages. Lenders will try to fill that gap in capacity by competing more aggressively for purchase business. Ms. Lantz expects some modest easing in requirements for minimum credit scores, maximum loan-to-value ratios, and debt-to-income ratios. “Lenders will look for where they have room to widen these guidelines conservatively,” she said.

Regulatory guidelines that take effect in January will set parameters on how much easing lenders can do without straying outside the government’s “qualified mortgage.” Lending outside that safe harbor isn’t likely to be liberal, and will mainly consist of low-risk loans to the wealthy, said Bob Walters, the chief economist of Quicken Loans, an online lender.

HOMEOWNERSHIP RATES FLATTEN OR FALL.  It may seem counterintuitive that the level of homeownership would be unresponsive to improving market conditions. But the national rate is only just stabilizing — at around 65 percent — after dipping from the historically highs during the housing bubble. “I don’t see us going up substantially from here,” Mr. Walters said. “We’re likely to level off where we’re at now.”

And those young adults who, because of a stronger economy, are finally able to find jobs and move out of their parents’ homes are more likely to rent than buy. “Ironically, that would bring down the homeownership rate,” Mr. Kolko of Trulia said, “not because there are fewer homeowners, but because there are people who were out of the housing market who are getting back in as renters.”       

ARMS, CASH-OUT ‘REFIS’ MAKE A COMEBACK.  Adjustable-rate mortgages, or ARMs, were viewed as risky after the housing-market collapse. But they are slowly regaining their appeal, and as rates on fixed-rate mortgages rise, more borrowers will take advantage of lower-rate adjustables.  “This almost exclusive focus on the 30-year fixed mortgage will lessen over time,” Ms. Lantz said. “As rates go up, ARMs might become more important options for folks, especially the longer-term ARMs,” in which interest is fixed for seven or 10 years.       

Cash-out refinancing was also abandoned after the collapse emptied borrowers of equity. Mr. Walters expects that as values continue to climb, more people will again look to unlock their growing equity. Interest rates will still be low enough to make cash-out refinancing an option for many people. “I think we’ll see a trend toward cash-out again,” he said. “It won’t be en masse, but we will start to see it.”

courtesy of:  http://www.nytimes.com/

Strengthening Housing Market Pushing Economy Forward

2013 Mid-Year Outlook: Economic Growth On the Road to ‘Normal’

Washington, DC – The U.S. may be well into a prolonged period of steady economic growth, but it hasn’t yet reached its full potential, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research Group. Fiscal headwinds are expected to keep growth to below 2.0 percent for the first half of the year, with gradual strengthening in the second half of 2013 and into 2014. However, as fiscal drags wane, growth should continue to move in the positive direction amid an ongoing recovery in housing, rising household wealth, and expanded energy production.

“At the outset of the year, we forecasted that 2013 would witness sustainable but below-par growth as the economy begins its transition to more normal levels. Halfway through the year, our view is little changed,” said Fannie Mae Chief Economist Doug Duncan. “We expect approximately 2.1 percent growth over the course of 2013, up from the anemic pace of 1.7 percent in 2012. This is consistent with the incremental improvement seen over the past few years but still below the economy’s potential. Our forecast calls for growth to push past 2.5 percent in 2014, boosted largely by tailwinds from the strengthening housing market.”

Housing was largely positive entering the spring/summer season, with various indicators such as home prices, home sales, and homebuilding activity showing signs of long-term improvement toward normal levels. Despite rising mortgage rates during the past month, which have affected refinance originations, affordability conditions remain high and should not present a significant obstacle to potential homebuyers.

courtesy of:  http://www.fanniemae.com