2014 Predictions
Happy end of the year! In January, I made some predictions about the state of the mortgage market for 2014. Now that the end of the year is approaching, it’s time to see how I did on those predictions.
(1.) Mortgage Rates are Expected to Rise
Outcome: Wrong
I am happy to be wrong about this prediction. Mortgage rates are at 16 month lows and at their lowest levels based on the news that the Federal Reserve has concerns over the health of the U.S. And Global economy. Source
(2.) Foreclosures Activity is Expected to Slow
Outcome: Right
October 2014 marked the 36th consecutive month of year-over-year declines in foreclosure activity. The national foreclosure inventory declined by 30.9% year over year in October 2014. 605,000 homes nationally were in some stage of foreclosure , known as the foreclosure inventory, compared with 875,000 in October 2013. Although foreclosures activity is heading in the right direction, there is still a ways to go before it reaches 2007 pre housing market decline. Source
(3.) Declining Affordability
Outcome: Right
As home prices rise, buyer power and affordability decline. There are other factors such as wages and mortgage interest rates that affect overall affordability as well. According to Forbes, income levels are not keeping pace with the increase in housing costs. Prices have continued to rise in the Seattle area by 5.5% during 2014 to a median value $464,300. Source Nationally, home prices have risen 4.5% from 3rd quarter of 2013 to 3rd quarter of 2014. Source
(4.) Fewer types of mortgage loan product options
Outcome: Wrong
The Qualified Mortgage rules, introduced by the Consumer Financial Protection Board (CFPB) took effect on January 10, 2014 . The QM rules prohibit a variety of loan products and features and require lenders to apply increased scrutiny in determining a borrower’s ability to repay on both non-jumbo and jumbo mortgage loans. During this year, many new loan programs have come into the market place through private and institutional investor sources creating another market for mortgages. Loan program options have actually expanded during the course of 2014.
(5.) Higher Qualifications required for “non-qualified” mortgages
Outcome: Right
Borrowers do need to meet stricter standards for debt-to-income ratios, FICO credit scores, residual income analysis, and more reserves for loans classified as “non-qualified”. Jumbo loans (loan amounts over $506,000) fall into this non-qualified category and adhere to a stricter set of guidelines in many cases than for “qualified” mortgages.
(6.) Return of Adjustable Rates Mortgages
Outcome: Right
Many borrowers opt for ARM loans than in the past. Although the QM rules make it tougher for borrower’s to qualify for ARMs, borrowers are enticed by the low rates.
(7.) Jumbo Rates likely to remain low
Outcome: Right
Jumbo rates continued to trend lower than conforming interest rates in many cases throughout the year. The jumbo loan market is backed by private and institutional investors whereby conforming loan amount market is backed by Fannie Mae & Freddie Mac, quasi government agencies. Conforming interest rates tend to be more volatile than jumbo loan rates.
(8.) Solid pre-approvals will be king
Outcome: Right
The housing market has continued to be competitive and borrowers look for ways to “win” a home and differentiate themselves on their offers. Sellers require a solid pre-approval from buyers in order for the offer to even be considered. Listing agents contact lenders to verify the validity of the pre-approval so it pays off for a buyer to be rock solid on their loan approval prior to offering on home purchase.
(9.) Fewer FHA loans
Outcome: Right
FHA mortgage insurance premiums have increased over the past few years and have made FHA loans more expensive for borrowers. This may cause more borrowers to seek conventional options. FHA loans became very popular during the financial crisis because the guidelines are less stringent in some cases and the tide may shift back to conventional loans in cases where the mortgage insurance is less expensive. Conventional loan guidelines have expanded and mortgage insurance has become less expensive over the past few years and there has been a shift in borrowers opting for conventional loans over FHA loans.
(10.) Borrower be prepared for a strip search
Outcome: Right
It will be important for borrowers to be organized with their financial documentation including paystubs, W-2’s, tax returns, and bank statements. Large deposits more than 25% of gross income need to be sourced and documented, credit inquires explained, derogatory credit items explained and documented, and letters of explanation for extenuating circumstances. Get used to this. Financial strip searches are here to stay.
Happy Holidays to you and your loved ones and blessings for the new year!