Vail Daily column: What to expect in 2016
Inevitably at this time of year, I am asked what the next year holds for the mortgage industry. I can say that the end of 2015 has been tumultuous. However, much of the volatility and changes that occurred at the end of 2015 lead to some insight as to what lies ahead for 2016.
As many have been expecting for a long time, Federal Reserve Chairwoman Janet Yellen raised the short term lending rate or the Federal Funds rate by 25 basis points (from 0 percent to .25 percent) at the Federal Reserve Board’s last meeting of the 2015 calendar year. This increase has only a minimal direct impact on mortgage rates. The biggest impact this increase has is on adjustable rate mortgages and ARMs as the rates on these types of hybrid loans are impacted more by Fed increases or decreases than a typical 30, 20 or 15-year fixed-rate loan. However, the increase can be seen to a certain degree as a harbinger of higher rates on all loans.
Interest rate increases
I think that 2016 will bring higher interest rates across the board for all types of mortgage loans. It seems as if the Fed will continue to increase the short term rates in 2016, and I think that long term rates are going to be on the rise as well. The government stimulus that has been in play for many years, in a successful effort to drive down longer term (30, 20 or 15-year fixed rates loans) mortgage rate, has ceased. A lack of government stimulus, what ought to be increasing inflationary levels and the increasing Fed Funds Rate will all factor in to push both short term and long term interest rates higher in 2016. Therefore, it is best to start communicating sooner than later if you will have mortgage financing needs in 2016.
While the government stimulus to keep rates low has ceased, the government regulation of the industry has ramped up! New TILA RESPA Integrated Disclosure Rule lending rules and regulations went into effect on Oct. 3. Needless to say, more regulation in the industry is making the process of closing mortgage loans tedious.
In summary, once a loan is fully approved and final loan figures have been drawn, mandatory waiting periods are now in place before the loan can close. I have closed loans for purchase transactions under the new regulations in fewer than 30 days, but it is recommended that purchase contracts are structured with a close date of no fewer than 45 days from the execution date. Prior to signing a sales contract in 2016, it is imperative that the loan officer review the contract to ensure the time frames can be met.
Tax and rental documentation
2016 may see some bright spots as far as underwriter guidelines and criteria are concerned. Underwriting self-employed borrowers will still be a challenge, but I am encouraged by the multiple ways in which a self-employed income calculation can be structured now. If you are self-employed and have financing needs in 2016, it is best to begin communicating with a loan officer sooner than later to see exactly how you can structure your financing and what may need to be done as far as your income tax returns.
Borrowers who own a primary residence and are looking to keep that home, rent it and buy another primary residence, will see some leeway as well in regards to the manner in which they may be able to use that potential rental income. Previously, a borrower in this scenario was forced to document equity in the home and show lease agreements and rents received. Going forward, this scenario will be slightly easier. Exactly how much documentation will be dependent upon other variables, but the scenario has become much easier.
2016 promises to be a mixed bag within the mortgage industry which is indicative of the manner in which the industry has operated over the past few. As always, it is recommended to seek professional mortgage guidance before entering in to any contractual obligations or before committing to any financing terms.
William A. DesPortes of Central Rockies Mortgage Corp. can be reached at 970-845-7000, extension 103 and email@example.com.