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5.26.2016 Survey: Bankers Believe CFPB Rules Will Restrict Mortgage Lending
According to the American Bankers Association’s 23rd annual Real Estate Lending Survey, three out of four bankers believe that the Consumer Financial Protection Bureau’s (CFPB) mortgage lending rules will reduce credit availability and restrict mortgage lending going forward.
In addition to concerns about increased regulatory burdens (including TRID) and other compliance issues, bankers are also concerned about economic uncertainty and the interest rate environment. Most of the respondents (about 68 percent) to the ABA survey, which was released in April, were from smaller banks with assets under $1 billion.
Trends in Qualified Mortgage Lending
The survey also revealed that more than a quarter of banks are restricting lending to within qualified mortgages (or QMs). In addition, 86 percent of the mortgage loans made last year by a typical bank were qualified mortgages. And among banks that do make non-QM loans, about half make them with restrictions or only to targeted markets.
The main reasons banks considered mortgages to be non-qualified were if borrowers had high debt-to-income levels or there was a lack of proper documentation that prevented consideration of all borrower income and/or assets.
Interestingly, the percentage of QMs made last year was slightly lower than the percentage made in 2014 (90 percent). The survey attributes this to the fact that more banks are adjusting their underwriting criteria to target selected non-QM mortgage opportunities.
More Survey Results
Other relevant results from the survey include the following:
Fifteen percent of mortgage loans made last year were to first-time homebuyers, up from 14 percent in 2014 and 13 percent in 2013. This was the highest percentage of mortgages made to first-time homebuyers since the survey began 23 years ago.
Foreclosure rates fell drastically last year — from 0.57 percent in 2014 to 0.37 percent in 2015.
Delinquency rates for single-family homes also fell — from 1.76 percent in 2014 to 1.27 percent in 2015.
While the 30-year fixed-rate mortgage is still the dominant type of mortgage, it represented a slightly lower percentage of all mortgages last year (47.4 percent) than it did in 2014 (50.5 percent).
Last year, 87 percent of bankers said that regulation was having a moderate or extremely negative impact on their lending business. This was up from 75 percent who said this in 2014.
About half of banks (45 percent) perform quality control in-house, while 17 percent outsource quality control and 38 percent do both.
The primary drivers of higher compliance costs identified by bankers are increased time allocation, technology costs and personnel costs and loss of efficiency.
There has been pushback recently to what some lawmakers consider to be CFPB overreach in some areas. In fact, the fiscal spending bill for 2017 just released by the House Appropriations Committee would reform the CFPB by replacing the director with a bi-partisan five-member commission and fund the agency through congressional appropriations, instead of the agency receiving funding from the Federal Reserve.
We’ll keep you updated on this and other CFPB developments as they relate to mortgage lending in future issues.
We’re interested in hearing from you. What do you think about the impact of CFPB mortgage lending rules on credit availability and mortgage lending? Send me an email at email@example.com.
5.18.2016 Trends to Watch During This Home-Selling Season
Spring and summer are traditionally the busiest seasons for home-selling activity. It’s a good time for many families to move in order to get their kids into new school districts before the fall. Plus, the longer days allow more time for buyers to look at homes, and the homes themselves usually show better with nice landscaping and no snow on the ground.
Every home-selling season is a little bit different, however. Here are a few trends that are shaping the home-selling season of 2016:
1. It’s looking like a seller’s market. Home prices and demand have solidified in many areas of the country, which generally favors sellers. In especially hot markets, sellers are receiving multiple offers for their homes — with bidding wars even breaking out among buyers who are desperate to land their dream home.
Inventory turnover is another factor that’s currently playing in the favor of sellers. The housing inventory cycle now stand at 4.4 months, which is significantly less than the 6 months that’s considered a balanced market of housing inventory. This imbalance is due in large part to the fact that the number of homes for sale nationwide has dropped by 35 percent over the past four years.
In this environment, fewer available homes for sale tends to drive up the prices of homes and give sellers more negotiating leverage. Starter home inventory, in particular, is way down, which impedes the ability of new homebuyers to get into their first home and start enjoying the benefits of home ownership.
2. More buyers are looking at new homes, as opposed to existing homes. With the supply of existing homes for sale so tight, some homebuyers are being pushed to consider buying a brand new home. The chief economist for Trulia says that the number of new homes being purchased off of a plan has hit a 10-year high.
For example, privately owned housing starts in April were at a seasonally adjusted annual rate of 1,172,000, which is up 6.6 percent from March, according to the U.S. Department of Housing and Urban Development. Also, the shares of KB Homes recently soared after the homebuilder reported strong first-quarter financial results, including higher-than-expected revenue.
3. There’s still a disconnect between what many people think about the cost of buying vs. renting a home and reality. A recent survey by Freddie Mac found that seven out of 10 Americans think that renting a home is cheaper than buying one. But the reality is just the opposite.
According to research conducted by Trulia, it costs less to buy a home than to rent one in 98 of the 100 largest U.S. metro areas. Baby boomers (73 percent) are Millennials (70 percent) are more likely to have the mistaken impression that renting is cheaper than buying than Gen Xers (61 percent).
Of course, there are other factors that go into the buy vs. rent decision beyond just cost. Many people (especially young Millennials) prefer the lifestyle advantages of renting, like not having to worry about home repairs and upkeep and having the flexibility to move easily whenever they want. Many are also challenged to save enough money to make a down payment on a home.
We’re interested in hearing from you. What do you see as the primary home-buying trends in your market area? Send me an email at firstname.lastname@example.org.
5.11.2016 Home Equity Loan Balances Are Falling While Originations Grow
The good news on the home equity lending front is that origination volumes for home equity loans and HELOCs are on the rise. The not-so-good news is that the volume of these loans on the balance sheets of U.S. banks is declining as borrower paydowns exceed new loan originations.
The volume of home equity loans and HELOCs in the banking industry declined during the fourth quarter of 2015 for the 28th straight quarter. U.S. banks and thrifts held aggregate home equity loan and HELOC balances of $533.14 billion at the end of last year, down 1.5 percent from the previous quarter.
Big Banks See Biggest Declines
The declines were especially sharp at the four largest U.S. banks. At Wells Fargo, for example, home equity loan volume declined during the fourth quarter by $1.85 billion. The bank’s CFO indicated that this trend will probably continue in the future, calling home equity lending “sort of a going away business.”
Experts attribute some of these paydowns to the fact that the 10-year draw periods are coming due for loans and HELOCs that were made in the mid-2000s. At this time, these loans will become fully amortizing. Combined with rising interest rates, this could hit borrowers with a payment “double whammy,” as one industry insider put it.
Also, outstanding home equity loan balances are declining overall as borrowers refinance their first and second mortgages to take advantage of historically low fixed interest rates. On the positive side, last year was the fourth consecutive year in which overall home equity lending grew — it was up by 20 percent over 2014 to $146.1 billion.
Replacing the Runoff
As they seek to replace the runoff of home equity loans in their portfolios, some banks are increasing their appetite for home equity loan origination or buying whole loan portfolios, while others are loosening underwriting standards.
For example, one new online home equity lender allows well-qualified borrowers to take out up to 95 percent of their home equity via a HELOC and is approving HELOCs for borrowers with credit scores as low as 660. Overall, though, home equity lending underwriting and guidelines have remained fairly conservative.
Some banks are also ramping up their home equity loan marketing efforts to tap into the growing market of homeowners who have equity. This is helping these banks broaden their lending activity beyond just mortgages to buy new homes or refinancing existing loans.
Fundamental Market Shifts
A decade after the peak of home equity loan originations in the mid-2000s, it appears that the home equity lending market is undergoing some fundamental shifts. We’ll continue to keep you updated about these and other home equity lending trends in future issues.
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5.9.2016 Home Equity Lending Is Heating Up
As the housing industry recovers from the depths of the recession in many parts of the country, home equity lending is also staging a comeback of its own. Origination volumes have been trending higher over the past couple of years as home prices rise and homeowners seek to tap into their growing equity.
Between January and September of 2015, lenders originated 976,000 new HELOCs with credit limits of $116 billion. These numbers were up 21 percent and 31 percent respectively over 2014 and were the highest they’d been for the first three quarters of a year since 2008.
Looser Underwriting Standards
Some home equity lenders are starting to loosen their underwriting standards. One new online home equity lender allows well-qualified borrowers to take out up to 95 percent of the equity they have in their home via a HELOC. In addition, this lender is approving HELOCs for borrowers with credit scores as low as 660. The median credit score for HELOC borrowers is 788, according to Equifax.
Most banks, meanwhile, don’t allow borrowers to exceed 80 percent of their home equity on a HELOC. For example, homeowners with HELOCs in the fourth quarter of last year borrowed an average of 66 percent of their home’s equity.
In another sign that home equity lending is loosening up, LendingTree.com recently reported that 37 percent of its HELOC applicants who have less that 20 percent equity in their homes were contacted by a lender in February. At the same time last year, just nine percent of such applicants were contacted by a lender.
Data recently released by Equifax also points to a healthy home equity lending market. The credit limits on HELOCs originated by lenders last year were 20 percent higher than the year before and double what they were five years ago. HELOC limits in 2015 were just over $146 billion — a nice number, but still less than half what they were in 2005 when they peaked at $364 billion.
Reasons for the Rebound
A number of reasons have been cited for the improving health of the home equity lending market. The main one is the housing industry bounce back: Home prices nationwide are up 35 percent over the past four years as measured by the S&P/Case-Shiller Home Price Index. This strong appreciation has created more than $6 trillion of equity since the first quarter of 2009.
Rising consumer confidence, falling unemployment and an improving (albeit slowly) economy also play a role. More than 13.5 million new jobs have been created over the past six years and the unemployment rate has fallen in half: from 10 percent in 2009 to 5 percent today.
There are certainly reasons to be encouraged about these and other trends in home equity lending. We’ll continue to keep you abreast of the latest happenings in the home equity lending market in future issues.
We’re interested in hearing from you. What do you think about the current state of the home equity lending market? Send me an email at email@example.com.
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