Below is a letter from John Inzeo, Vice President of Wisconsin Mortgage Corporation, describing the housing and mortgage banking industry updates and changes to expect throughout 2014. If you have any questions about this information, contact a Wisconsin Mortgage Loan Officer or reach out to us on the Wisconsin Mortgage Facebook Page.
The Housing and Mortgage Banking Industries are laser focused on 2014. With all the talk about implementation of the Qualified Mortgage (QM) and Ability to Repay Standard (ATR), it’s easy to miss or ignore some of the positive nuances that I believe will partially define the journey in 2014.
First, Mel Watt (former Congressman from North Carolina ) was confirmed by the House and Senate on December 10th to become the new Director of Federal Housing Finance Agency (FHFA). This is the agency that was formed during the financial crisis to regulate Fannie Mae and Freddie Mac. Director Watt immediately announced that he would delay any increases in loan fees ” until such time as I have had the opportunity to evaluate fully the rationale of the plan.” This action insured that we would NOT start the new year with much higher fees being charged to customers who do not have perfect credit scores and/or those with lower down payments. Many industry leaders believed that the plan to increase fees would have a devastating affect on many qualified borrowers seeking financing for home purchases. Mr. Watt’s action is a strong indication that he listening to our collective voices.
I’m happy to report that our testing of the new Qualified Mortgage (QM) rule has been much more positive than we anticipated. A very small percentage of loans failed this new test, and we fully expect to navigate a very high percentage of our loans through this new regulation in 2014 and beyond. There is no question that QM will have a greater impact in other parts of the country. Midwest lending standards match up well to the tenants of QM’s “common sense” principals. We will keep you informed as we continue to study the overall impact of QM and its 3% cost to finance rule. Early returns tell us that the impact will be low.
The Ability To Repay (ATR) standard has also created concern related to tightening of available credit. Our industry partners have been working in concert to develop “make sense” worksheets to assist mortgage underwriters in the further documentation and clarification of income used to qualify borrowers. Is there a silver lining here? Actually, we believe that our focus on purchase business, as opposed to refinance business, throughout the years has created a customer service culture that speaks directly to the principal of “what’s best for the customer.” Assisting customers to acquire financing that they can actually afford has been a major tenant of our company since it was formed in 1983, where providing a positive includes doing the right thing when it comes to our customers finances. Meeting the ATR standards will require us to ask for more documentation, but the keys to our success with this will be a higher level of communication with Shorewest real estate agents and the buyers they entrust to us.
Federal Reserve Tapering —although it sounds ominous, we all knew that the Federal Reserve would begin tapering of its bond program as the economy improved. Let’s not forget that the first round of tapering will not begin until March of 2014. New Federal Reserve Chairwoman Yellin has made it clear that she will advocate for gradual tapering to insure stability of interest rates in 2014 and 2015. She understands the importance of Housing to the overall economic recovery. Although we expect some small increases, we do believe that rates will be stable for the most part in 2014.
Watch for many more updates on these and other topics as we begin our 2014 journey. We wish you all a happy and healthy 2014!