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State of the Mortgage Market

Which Way for the Mortgage Market????

Which Way for the Mortgage Market????

Orange County, CA – The housing market is in a very interesting place right now. On the one hand, home prices are rising and interest rates are holding steady, so purchasing power is slowly decreasing. This usually encourages people to buy rather than wait. On the other, economic uncertainty looms with the potential for another government shutdown at the end of January. Couple that with the fact that the mortgage industry is getting a makeover in the form of the QM and QRM rules going into effect on January 14th, and you have a market that is suffering from a huge lack of confidence.

The result? Mortgage applications are down 4.6% just over the past two weeks.

Jay Brinkmann, chief economist for the Mortgage Banker’s Association, said, “Uncertainty about the economy is causing people to sit back and say ‘let me rent for a bit and see where it goes.”

On The Other Hand
While the number of mortgage applications is going down, the market is doing well in a completely different respect. More people are paying their mortgages on time then they have since before the economy collapsed. According to credit reporting agency TransUnion, only 4.09% of mortgages were more than one month delinquent as of September 2013.

Of those delinquent mortgages, most of them are quite old. Brinkmann said, “Of the [delinquent] mortgages that are out there, about three quarters of the problem loans are from 2007 or earlier.”

Therefore only 1% of the mortgages that came into being since the economic crash are problematic. So we’re laying a much more stable and viable long-term foundation than we had in 2007.

What’s Next?
The Mortgage Banker’s Association predicts that interest rates will begin rising in January as the new QM and QRM rules begin to apply. They feel this will culminate in a rate near 5% by the end of 2014. They also predict that house prices will continue to rise, but they don’t necessarily see that as a deterrent to new home purchases.

“People tend to buy for lifestyle reasons when they need to more than because of interest rates,” Brinkmann explains. “It’s the second baby and the one bathroom that drives more housing decisions than anything else.”

Why We Disagree With the MBA
As we see it, most of the major lenders have already adopted the standards set forth in the QM and QRM rules — they’ve done so since the rules became formalized a few months ago. Just like the Boy Scouts, they’re doing their best to ‘be prepared’ for the changes they know are coming. If the interest rates go up in 2014, it’s probably not going to be meaningfully credited to the QM and QRM rules. We do expect rates to rise but accredit it more to QE3 and political wrangling. There may well be other economic conditions that cause rates to rise, but we doubt that QM and QRM will be significant factors.

Scott Storace

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