Are low down payments back?

Mortgage credit has remained tight since the housing crisis. The response was intended to ensure sound, well underwritten mortgages were provided to buyers, but an unintended consequence was that many buyers were locked out of home financing. Recently, Fannie and Freddie regulator FHFA said that they would take steps to expand credit for the purchase market, including backing loans with down payments of 3%, down from today’s 5%. And, federal agencies approved the final QRM, or qualified residential mortgage, rule that removes a once proposed requirement of a 20% down payment. Finally, individual mortgage lenders began announcing earlier this year that they were easing their loan requirements. (For a thoughtful commentary on the complexities of all these changes and what they mean to buyers, read this post in the WSJ Banking blog.)

 

As we await more details on the FHFA plan, the recent mortgage news has given fire to the old myth that low down payments are what caused the housing crisis.

Borrower beware?

The housing crisis was caused by mortgages with short term arms, no-documentation and other exotic features often not understood by the buyer. keep reading

NAR QM survey results point to negative buyer impact

Our analysis of the National Association of REALTORS® (NAR) survey on the qualified mortgage (QM) rule’s impact on lending and consumers reveal some alarming trends.

The QM rule became effective January 10, 2014 and is intended to ensure consumers have the ability to repay their loan. Sound underwriting is always important to lenders and borrowers, but concerns about the unintended consequences of these new rules continue to surface.

The findings in NAR’s recent survey of mortgage lenders should concern real estate professionals and consumers alike. They point to increased costs and limited options for buyers.

Our assessment of key findings:

  • Shadow industry looming: 45% of lenders indicated that they would not originate non-QM mortgages, mortgage rates would rise for all non-QM borrowers, including those with credit above 720.
  • Lenders hedge their bets with additional buffers: Significant share of respondents indicate that would impose buffers such as debt-to-income ratios that go beyond the QM rule to ensure loans will qualify.
  • Loan costs increase: Vast majority say they will increase staff and expenditures in response to QM.
  • Impact far from being fully understood or felt: Nearly a third of lenders say it would be 3 – 6 months before they adapt to QM.
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Webinar: HFA partnerships vital in QM-driven market

It’s a dramatic new year for housing. With a market sharply transitioning from refinances to purchases and new mortgage regulations in place, homebuyers and professionals must consider new factors and financing options during the home buying process.

Consider the following:

  • FHA—once the go-to source for first-time homebuyers—now have higher costs.
  • The Mortgage Bankers Association warns of a potential new “shadow industry” as a result of the new Qualified Mortgage (QM) rule that may cause some low-income borrowers to take out loans with higher rates.
  • First-time homebuyers, important for a healthy market, have diminished from 40% to just 28% of buyers. Saving for the down payment continues to be the number one obstacle to homeownership.

In this new QM-driven market, Housing Finance Agencies (HFAs) are stepping in to serve an important role. HFAs will be increasingly relevant because the Consumer Financial Protection Bureau exempted them from the new regulations and they also offer down payment and homebuyer assistance programs.

From a recent Bloomberg article on the importance of HFAs, Lawrence Yun, Chief Economist of the National Association of Realtors said, “First-time buyers have not been participating in the market recovery. Housing-finance agencies could provide a channel for these buyers.”

Webinar for lenders

Please join us for a special educational webinar to learn more about how partnering with HFAs, Realtors and other strategic partners can help your organization close more loans. keep reading