Higher mortgage rates, lower down-payment loans and new mortgage regulations are some of the key mortgage trends for 2015.
“The government seems to be operating on two tracks: This year, it is introducing another set of rules aimed at preventing the lax underwriting standards that spurred the housing crisis and Great Recession nearly seven years ago,” writes The Washington Post in a recent article. “At the same time, it is addressing concerns that lenders’ stringent standards may have led to a cooldown in the housing market by putting mortgages out of reach for thousands of would-be borrowers.”
While mortgage rates dropped to 3.66% as of Jan. 16, they are expected to rise to 5% by the end of 2015. At the same time, the minimum down payments for loans guaranteed by Fannie Mae and Freddie Mac are dropping from 5% to as low as 3%.
The new loan program featuring lower down-payment loans began Dec. 13 for Fannie Mae and will start on March 23 for Freddie Mac.
Some borrowers who would have chosen an FHA-insured loan may turn to these new conventional loans because they could have lower monthly payments, depending on the mortgage insurance premiums, notes The Washington Post.
But there’s also typically a bigger risk factor when someone makes a smaller down payment, Don Frommeyer, chief executive of the Association of Mortgage Professionals (NAMB), tells The Washington Post.
“I would expect that the restrictions on who can qualify for a loan with a down payment of 3% would be tighter,” Frommeyer says. “Also, the cost of private mortgage insurance goes up drastically once you make a down payment of less than 5%, so it may not be that attractive to borrowers.”
Introduced by the government last year, Qualified Mortgage (QM) regulations are “aimed at shoring up lenders’ underwriting policies,” writes The Washington Post, noting that QM regulations require that no more than 43% of borrowers’ gross monthly income can go toward their minimum monthly payment on all debt. Previously, lenders, who decided on their own what they felt the ratio should be, sometimes set the limit as high as 60%.
In addition, a new “Qualified Residential Mortgage” (QRM) rule goes into effect in October that requires lenders to keep a 5% share of mortgages on their books for at least five years unless the loans comply with the QM rules. The rule clarification could make lenders feel more confident about lending, experts tell The Washington Post.
Ultimately, reaching a full recovery in the housing market will take time, says Anthony Hsieh, founder, chairman and CEO of LoanDepot.com.
“I’m confident that the private sector will come back to mortgage lending, but not yet,” he says. “It may be six or seven years without much expansion in mortgage lending, but at some point the tide will turn again. Right now there’s a lot of chatter about making mortgages more accessible, particularly for first-time buyers, but I’m not sure about the speed of change.”
Read The Washington Post article here.
Written by Cassandra Dowell