February 12th, 2015 1:17 PM by Richard T. Cirelli
Mortgage Trends: 2015
Interest Rates:
2014 was forecast to be the year of rising interest rates. The Fed phased out its program of buying Treasuries and Mortgage Backed Securities which presumably kept rates artificially low. Additionally, economists predicted, and many still predict, that the Fed will raise the Federal Funds Rate by the middle of 2015. Yet, despite all the forecasts of rising rates, mortgage rates declined in 2014. Falling oil prices, weakness in foreign economies, a falling dollar and expanded terrorism threats are to thank for the lower rates.
The chart below tracks the benchmark 30-year fixed rate mortgage for loan amounts less than $417,000 as published weekly by Freddie Mac, one of the two Government agencies responsible for buying mortgages originated by nearly all lenders across the country. Rates dropped form a high of 4.43% in January to a low of 3.86% in December, a reduction of more than .50%.
My Prediction:
Rates will remain relatively low throughout the year. I doubt that we’ll see mortgage rates above 5% and for much of the year they may be in the high 3% to low 4% range. I don’t think the Fed will raise the Fed Funds Rate in the summer.
The Return of Jumbo Mortgages:
The availability of Jumbo mortgage products increased dramatically in 2014. The term “Jumbo” applies to mortgages that exceed the maximum purchase limit of $625,500 in the highest priced markets for loans originated to be sold to the Government agencies of Fannie Mae and Freddie Mac. Prior to 2013 there was virtually no jumbo product. 2014 saw the reemergence of a secondary market for jumbo loans enabling bank and non-bank lenders to pool these mortgages and sell them to institutional investors once again. Confidence that depreciating home values are well behind us combined with much stronger underwriting guidelines eliminated the fear that previously existed.
Interest rates for Jumbo 30-year fixed rate loans start 2015 around 4% - not much higher than the smaller Fannie Mae/Freddie Mac loans. Loan amounts of $4 Million and higher are readily available.
More lenders will enter the game creating more loan programs, products and niches. This will continue to support home sales and refinance opportunities. And, competition will keep rates relatively low.
Non-Bank Lenders Gain Market Share:
The big banks have been beaten up pretty badly by the Government. Disregard for lending procedures in the past from the likes of Countrywide, Washington Mutual and others that were acquired by the big banks have resulted in massive fines, buyback of loans and more regulatory scrutiny. A history poor customer service has plagued them too.
Non-Banks and Mortgage Brokers will continue to gain more market share. Their ability to offer a much wider array of products; an improved reputation; the ability to provide more detailed and sophisticated guidance to clients and localized customer service to borrowers will enable these originators to grow.
Underwriting Guidelines:
A year ago we had the panic of a new regulation called the “Qualified Mortgage” or “QM”. The purpose of this regulation is to give lenders a “Safe Harbor” from future law suits by borrowers if they originate loans that meet the definition. QM eliminated “risky” loan features such as negative amortization, interest-only payments and loan terms longer than 30-years and loans that have a Debt-To-Income (DTI) ratio over 43%. I predicted that the stricter guidelines will lead to a movement by bank and non-bank lenders to create loan programs and niches outside of the QM definition. And it did—in a big way.
We will continue to see more Jumbo loan product with unconventional guidelines come to the market as lenders seek greater returns and the market for Securities for these higher-yielding loans grows. Higher LTV’s of 90% and 95% are already available on jumbo loans. I don’t have much hope for looser standards from the more regulated Government Sponsored Enterprise programs offered by Fannie Mae, Freddie Mac or FHA.
A Change in Demographics:
Home price increases have leveled off but still forecasted to increase, homebuyers are gaining confidence, rates remain low and financing is more available. These are all ingredients for a good market in 2015. So who is going to buy? In our market there is plenty of wealth
Everyone is talking about the Millennials as the demographic group to focus on. The population of these 20 and 30 year olds with higher income is growing and the time is right for them to buy. Our immediate coastal market always continues to attract the wealthy that will by without too much concern for cost. I’m also seeing more Veterans returning home and wanting to buy. Middle-of-the- road buyers will emerge as they have overcome their financial hardships, and short-sales of the past.
Commercial Property and Lending:
The Commercial property real estate and loan markets are emerging strongly as the next hot market.
Loans are readily available for Multi-Family property; Mixed Use; Office Buildings; Small Business Administration (SBA) loans; Lines of Credit; Hard money loans, Special-Use Property and more.
Commercial real estate transactions and financing will continue to have a more dominant place in the recovering real estate market.
Speaking of commercial loans, I have formed a new company along with a long-time commercial property loan expert Jeff Redeker. We finance all types of Commercial Property including Office Buildings, Multi-Family Apartments, Mixed-Use properties, etc.
Visit our sister company at www.BeachCitiesCommercial.comand call me for more information.