Entries in Unemployment (3)
Topical Issues In Mortgages
Monday, August 2, 2010 at 1:21PM To say there is a tremendous amount going on in the world of mortgage finance is an understatement. Here are some of the key issues and talking points:
Financial Reform Act – this gigantic legislation is going to make an impact to the way mortgage lending is done in the years ahead. Here are a few highlights – underwriting guidelines will require third party verification of a borrowers ability to repay (aka, no more stated income “liars loans”); ARMs will be more expensive due to mandatory loan loss provisions for the originating bank; and their will also be more upfront disclosures to the consumer – more paperwork.
Deflation and Inflation – it seems economist and analysts can’t make up their mind on which one is going to occur. Deflation, or a drop in value of all goods and services, is certainly the worst, but, even the mention of it is enough to keep mortgage rates down. Inflation, on the other hand, when moderate is a good thing. However, the fear is with all the debt needed to try and stimulate the economy out of recession is that inflation will get out of control. And thus, cause mortgage rates to rise quite significantly. It is the fear of inflation, and all-time low fixed rate that should be motivating all borrowers on adjustable rates to refinance today.
European Debt Crisis – there are several European countries, like Greece, Portugal, and Spain, whose debt and repayment of that debt has become quite a burden. Investors, as a result, have decided to move their money into safer investments like US mortgage backed securities. This has caused mortgage rates to drop. Any stabilization in the European countries would cause assets to flow back overseas and drive rates back up, and vice versa.
United States Debt Crisis – yesterday Moody’s was saying that the US has to provide a credible plan to address its rising debt, or risk loosing its AAA rating. This news comes on the heals of a report from the Congressional Budget Office (CBO) “Federal Debt and The Risk of a Fiscal Crisis”, which outlines the concern over our mounting debt. A downgrade in our debt instruments will cause interest rates to spike rather quickly, and possibly severely.
Unemployment – while the data seems to support that things are getting better on this front, the real story is how the data is being reported. Does, “lipstick on a pig” sound familiar? The creation of new jobs will really be the telltale factor in the recovery.
Foreclosure Rates – no matter how you slice it the amount of foreclosures and those heading to foreclosure is a significant drag on the real estate market. It appears it may get even worse later this year – check this out from real estate expert Steve Harney, "Will The Shadow Inventory Ever Come to Light".
Expired Tax Credit and All-time Low Mortgage Rates – the data now coming it appears to show that the tax credits simply motivated buyers to act sooner than they would have. Demand, despite the low interest rates simply is not as strong and the amount of properties reaching the market is rising (see above). And if that wasn’t enough, more existing homeowners are choosing to refinance, again, rather than look for that “move up” opportunity.
Strict Underwriting Guidelines – “zero tolerance”. Get used to those words. It is a very different mortgage world we live in today. All borrowers, regardless of how well qualified, will have to make sure all their paperwork is in and is exactly consistent. All deviations will have to be address. So, plan on the process taking a bit longer and being asked to provide more documentation.
OK, so this isn't the most optimistic news, but it is all very important news that needs to be shared with mortgage consumers. If I better communicate what we are dealing with then we can all better manage the situation and provide a positive experience in this challenging time. The key to success in this market is proactive honest upfront communication.