January 27th, 2011 1:14 PM by Richard T. Cirelli
The Best of Mortgage Lending in 2010
Last year was a transitional year in the mortgage business. After nearly two years of tightening of the lending rules, shrinking supply of lenders and virtually no jumbo lending to help our markets, we had some very positive improvements in mortgage lending that I think will continue in the New Year.
Below is the countdown of the Top 5 Mortgage events of last year:
5. Stabilization of Underwriting Guidelines
After seeing continuous changes in the previous two years, the guidelines are more stable and we know the rules under which we must play.
4. Low-Down Payment Programs
The FHA 3.5% down payment program on loans up to $729,750 in certain markets enabled first-time homebuyers to buy and homeowners to refinance. Private Mortgage Insurance companies also eased their guidelines and allow 95% again.
3. Improved Appraisal Standards
The problem of low-quality appraisals by out-of-area appraisers seems to have dissipated. Most of the bad appraisers have been weeded out and the Appraisal Management Companies that lenders are required to use to obtain appraisals have learned to assign appraisers more local to the property.
2. Lowest Rates Ever
Rates dipped around 4% for the benchmark 30-Year Fixed Rate loan under $417,000. During the year this rate ranged from a high of around 5% in January to the low point in November. Since then, rates have risen a little but are still exceptionally low.
1. The Return of Jumbo Financing
We now have several choices for loan amounts above the Fannie Mae/Freddie Mac/FHA limits of $729,750. Loans to $2 Million, $4 Million and more are available to help the high-end purchase market and those needing to refinance.
What To Expect in 2011
Mortgage Rates will continue to be low but should gradually rise as the economy improves and the Fed tries to stave off inflation. Barring any exceptionally negative events in the national and worldwide economy, we should see mortgage rates rise from the high 4%’s to the high 5% range for the benchmark 30-year fixed rate loan under $417,000. Volatility will remain until there is solid stabilization in the economy.
Unfortunately, the introduction of Risk-Based pricing by Fannie Mae and Freddie Mac and new Regulations will serve to increase the cost of originating a mortgage.
Higher Quality Loan Originators but Fewer Choices for Borrowers:
The Nationwide Mortgage Licensing System & Registry (NMLS) became reality on January 1st. Mortgage Loan Originators are now required to pass a much higher standard including: educational courses, criminal background checks, minimum credit standards and passing comprehensive State and Federal exams. While this is beneficial in eliminating fraudulent and/or incompetent Originators, the result will be a consolidation of independent mortgage companies and brokers. Ironically, the Loan Originators that work for the big, federally chartered Banks do not need to meet the same stringent standards.
As the Government increases their Regulation over mortgage Lenders in order to protect the Borrower, additional Disclosures and Procedures are being introduced. It’s all designed to protect the consumer but the end-result will be longer processing times and higher cost.
More Jumbo Loans, Lenders & Programs
As big banks and lenders return to profitability and the housing markets improve, we will see more lenders willing to enter the Jumbo loan arena providing loans above the $417,000/$729,750 loan limits. If the market for Private Mortgage–Backed Securities returns and Lenders are able to securitize these loans we will see even more jumbo products become available.
Overall, I predict that 2011 will be more of a Purchase market as opposed to the 2010 market that was a blend of Refinance and Purchase business. If jobs are created and homebuyers feel more confident that their jobs are safe, we will see more home sales. The wild card is the impact of still un-foreclosed properties to hit the market. Too many homes coming on the market at depressed values can drive down the value or real estate and stymie the recovery. Employment and Housing are the main two keys to recovery. We’ll have to see how it plays out.
Mortgage Rate Update: