Lending
Are there any pending changes in lending that will affect agents?
David Hrobon, Wintrust Mortgage: There are a number of pending changes next year that could affect lenders, but only a few of them could potentially impact agents:
A 7 percent increase in the conforming loan limits just announced: new limits for a single family home went from $424,100 to $453,100. Loan limits on two-, three- and four-unit properties have increased to $580,150, 701,250 and $871,450, respectively.
Technology advancements: The mortgage industry has been investing significant resources into technology the past few years to help reduce loan approval timeframes, reduce origination costs and improve the customer experience. Some of the early developments lacked substance but the next generation should offer some noticeable improvements.
New CFPB director: A new director is poised to address some of the industry’s concerns from the previous director. Namely, specific areas of redundant or excessive regulation and a lack of clarity on a few important topics such as RESPA, Fair Lending and LO Comp. Added clarification could help lenders focus resources on improving their processes and the customer experience, rather than on the analysis and interpretation of regulator requirements.
New FHA director: Brian Montgomery looks to take the reins at FHA. He is a seasoned veteran and may push for changes to, or separation of, reverse mortgages from the standard HUD Mortgage Insurance Premium fund. If successful, he would then be positioned to advocate for a drop in the FHA MIP rates. This will help reduce FHA costs and help more first-time homebuyers qualify for a loan.
Chris Knapp, Guaranteed Rate: While the Federal Reserve has been very transparent about its intentions to raise interest rates, the lack of inflation and the influence of foreign central banks likely limit interest rates from moving much higher than they already are, especially for longer-term interest rates associated with mortgages. Remember, the Fed’s primary mission is to stabilize prices and wages through its use of monetary policy; engineering economic stimulus is a relatively new undertaking.
To be sure, the Fed’s stimulus package, which includes historically low rates and bond purchases, has been a key driver of the U.S. economic recovery since 2009. What we haven’t seen, however, are signs of inflation, either in prices for goods and services or, more importantly, wages. While the recent rate hiking by the Fed has indeed given it some much-needed dry gunpowder in the event the economy slips into a recession, it’s done little to push longer-term and mortgage rates higher, creating a flatter yield curve, one where the spread between short-term and long-term interest rates is much smaller. A flat yield curve is generally believed to be a sign that a recession is on the horizon, which may limit the Fed’s ability to increase rates further. We believe the one wild card that could cause rates to move higher in a meaningful way would be successful tax reform legislation. To be sure, the bond markets will be paying close attention to tax reform as it develops. For now, we feel rates in 2018 will continue along the same path as 2017, with the U.S. 10-year note yielding between 2 percent and 2.6 percent. If there is a breakout, we feel the 10-year is more likely to see 1 percent before 3 percent.
Paul Lueken, Draper & Kramer Mortgage: There are some potential, recent and upcoming changes in lending that are likely to affect agents. One is the tax plan that recently passed in Congress, which could reduce some aid and incentive to certain homebuyers by curtailing the mortgage interest and property tax deductions. Another development is the Federal Housing Finance Agency’s recent increase to conforming loan limits, an update that makes it easier for more buyers to obtain favorable conforming mortgages. I expect lenders to continue to loosen credit and debt-to-income ratios, and this will also aid buyers.
What will happen with interest rates in 2018? Will they go up, down or remain stable?
Hrobon: In short, the Federal Reserve is anxious to increase short term rates (“the lift-off strategy”) to help restore a monetary cushion that could be used, if and when needed, to help stimulate economic growth. Nonetheless, most real estate-related economists are currently predicting a slow rate of moderate rate increases over the foreseeable future. The Mortgage Bankers Association and several of the Money Center Banks are predicting a mortgage origination market in 2018 that is down 5 to 10 percent next year. This includes an 18 to 20 percent drop in refinance loans in 2018 and a flat (or similar level) of purchase money mortgages in 2018, versus 2017 levels. The majority of these economists are also predicting a slight flattening of the yield curve — narrowing of the difference between short-term rates and long-term rates. This could cause lenders to raise origination fees to help offset the impact.
Knapp: There are a few items slated for change in 2018. In my opinion, one of the most impactful will be the raising of the conforming loan limits for 2018. In line with the recent Federal Housing Finance Agency announcement, the conforming and high-cost area loan limits are increasing for 2018. The change is moving the maximum loan limit from $424,100 to $453,100 on a one-unit property, as an example. This will allow for the flexibilities and programs previously offered to now apply to more buyers and higher price points/loan amounts. In addition, the lending criteria has seen credit loosening, which will impact the 2018 purchase market. This is allowing more buyers to purchase based on generally more favorable terms. Requirements such as debt-to-income ratios, more jumbo lender liquidity and additional low down payment programs will undoubtedly bring more buyers to the marketplace.
Lueken: Now that the Federal Reserve has begun the gradual selling of the mortgage-backed securities they have been purchasing from 2008 until recent years, it will put slight upward pressure on rates and likely cause them to increase. My prediction is that the rate for 30-year fixed-rate mortgages will reach 4.5 percent or higher sometime during 2018. There is a strong likelihood that the Fed will raise rates higher than they should toward the end of 2018, which could cause a recession in 2019.