DesPortes Column: Is the sky falling for the mortgage industry?
January 3, 2014
When friends, borrowers and colleagues ask me about what the mortgage industry will hold in store for 2014, my initial answer is twofold. I do not believe that the sky is falling or the bottom is dropping out of the industry; there are many positive aspects within the industry. However, there are new regulations and new lending guidelines that will take place and that will be implemented in 2014.
Impacts of these changes and new regulations are not really known at this point. Their full effects will have to be analyzed as they begin to impact actual loan scenarios. To illustrate this point, in 2013 the Consumer Financial Protection Bureau mandated that a new rule called the qualified mortgage will go into effect beginning in 2014. This rule applies more to the way in which I structure my business; exact details of the rule are the topic for another column. Suffice to say, the industry from lenders to loan originators to borrowers will be impacted to one degree or another. Furthermore, Fannie Mae and Freddie Mac have released new and more stringent lending guidelines in regards to income qualification or debt to income ratio requirements which will certainly have impact on mortgage lending. Recently, the Fed scaled back its bond purchase program known as quantitative easing 3. Further pull back of this program will force rates higher at some point. Again, I don't think the sky is falling, but can't say how such changes and regulations will impact the industry until they all start to unfold.
Instead of focusing on things that are out of my control so to speak, I prefer to look at the positives within the industry and things that I can put a finger on and act upon. An emergence of portfolio lenders and portfolio lending type products that are not necessarily affected or impacted by such rules and regulations are continuing to emerge in the market place. This is a very positive aspect.
Portfolio lending options are loan products offered by niche type banks or even publicly traded banks lending their own money. The mortgage debt is not automatically sold on the secondary markets to Fannie Mae or Freddie Mac, which allows for more flexibility and freedom within the loan product's guidelines. Having portfolio lenders and portfolio loan products available to finance both local and national real estate is vital to the health of both markets.
For example, jumbo loans are available with only 10 percent down payment. Loan amounts more than $625,500 in Eagle County with only 10 percent down payment required are truly an anomaly and only a product being offered by a lender wanting to take advantage of such a niche for the right borrower. Such a product allows the borrower to keep money invested in financial markets or other real estate. This product is not right for every borrower, but it is good to at least have the option. There are limitations in place with the program, and a mortgage insurance premium will be paid in lieu of a 20 percent down payment.
Condominium hotels presented insurmountable challenges in the lending world for a long time. Financing options for "condo-hotels" were scarce if not almost non-existent for a few recent years. Slowly more banks and lenders have become familiar and comfortable with condominium projects that operate with many hotel-like amenities and rental operations within the projects. Nuances and terms of the programs differ from lender to lender, but the projects can be financed now without too much difficulty, which is positive for places such as the Vail Valley with many such properties.
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Buyers who currently have 10 or more properties financed can now finance the purchase of a primary residence. Self-employed borrowers may now only be required to show income based off of one not two years of their self-employed tax returns. I can point to further examples that illustrate the sky is not falling. Changes will be implemented and will take place in 2014, but a seasoned, educated and savvy loan officer will know how to handle them all.
William A. DesPortes, of Central Rockies Mortgage Corp., can be reached at 970-845-7000, ext. 103, and firstname.lastname@example.org.