(1.) Mortgage Rates are Expected to Rise:
What goes down will go back up. Mortgage rates rose 100 basis points in 2013 and are likely to rise in 2014. Janet Yellen, the new chairwoman of the Federal Reserve is expected to continue the past Chairman Ben Bernanke which includes
keeping rates low by buying blocks of mortgage-backed securities. The Federal Reserve’s bond-buying taper could push rates higher. Source: Click Here
(2.)Foreclosures Activity is Expected to Slow:
December 2013 was the 36th straight month with a year-over-year decrease in foreclosures activity. Foreclosures inventory is down nearly 33% since the end of 2012 and has dropped to multi-year lows. In addition, foreclosures starts in the third quarter of 2013. Source: Click Here
(3.) Declining Affordability:
As mortgage rates rise, affordability declines. According to Forbes, income levels are not keeping pace with the increase in housing costs. Source: Click Here
(4.) Fewer types of mortgage loan product options:
The Qualified Mortgage rules, introduced by the Consumer Financial Protection Board (CFPB) took effect on January 10, 2014 . The QM rules prohibits 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. The good news is that accordingly to CoreLogic, only 12.8% of new mortgages in 2012 didn’t meet the “qualified mortgage” standard. Lenders have already tightened their lending guidelines since the financial crisis so these rules are likely not to affect the majority of people. Source: Click Here
(5.) Higher Qualifications required for “nonqualified” mortgages:
Borrowers will need to meet stricter standards for debt-to-income ratios, FICO credit scores, residual income analysis, and more reserves for those loans classified as “nonqualified”. It is likely that lenders will make fewer exceptions with the new rules. Source:
(6.) Return of Adjustable Rates Mortgages:
As long term 30 year fixed rates rise, more borrowers may turn to ARMs. Although the QM rules make it tougher for borrower’s to qualify for ARMs, they may be enticed by the lower rates.
(7.) Jumbo Rates likely to remain low:
As interest rates rose in 2013 for conforming loans, jumbo interest rates have remained calm and are pricing lower in some cases than the conforming loans subject to strict Fannie Mae oversight. This could be an opportunity for jumbo borrowers in 2014 before another proposed rule under the Dodd-Frank law takes effect next year that requires lenders to retain 5% of the loan amount on their books. This rule could result in higher prices for these loans when it takes effect.
(8.) Solid pre-approvals will be king:
The rash of regulations over the past 5 years have no doubt made the loan process more complex for borrowers. The recent QM rules that went into effect in January further complicate the process and reinforce the need for a thorough pre-approval before borrowers put in a purchase offer. Sellers may factor in the pre-approval heavily.
(9.) Fewer FHA loans:
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.
(10.) Borrower be prepared for a stipsearch:
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.