February 12th, 2015 1:17 PM by Richard T. Cirelli
Mortgage Trends: 2015
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.
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%.
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:
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.
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.
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:
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.
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.
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.
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:
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
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.
Property and Lending:
Commercial property real estate and loan markets are emerging strongly as the
next hot market.
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.
real estate transactions and financing will continue to have a more dominant
place in the recovering real estate market.
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.
our sister company at www.BeachCitiesCommercial.comand
call me for more information.