Things are moving in the right direction, he declared in a presentation on trends impacting the industry in 2013, but it still will be a “slow, gradual grind-it-out recovery.”
The signs are good, as he pointed out pending home sales are continuing to grow. In fact they have hit their highest organic growth levels since 2007.
Unemployment is one of the reasons why the recovery is a slow one, Sharga said. He said the rate will not get below 6% for the next three years and that will hold back “explosive growth” in housing.
Inventory of homes for sale continues to fall, another good sign due to “a weird confluence of events,” he declared. The first is that homebuilders are not building enough new homes to replace obsolete ones.
Next, existing homes are being held off the market because underwater borrowers are not putting them up for sale. Finally activity involving foreclosed homes up for resale has slowed because of such problems as the robo-signing issues.
But a year from now, Sharga said, this could all change. Builders are starting to ramp up activity. The inventory shortage is causing prices to rebound, rescuing many underwater borrowers and thus bringing more existing homes to market.
Foreclosures remain the wild card. While activity is starting to build up again, in some judicial states the process from start to finish is backlogged as long as three years.
Sharga said the “asterisk” to his predictions is the fiscal cliff. If it is not resolved or if the compromise solution adds to the burden of the middle class, “everything I said is out the door.”
There is also no certainty of what will happen in Washington when it comes to regulatory changes, he said.
Right now there is virtually no risk in mortgage lending today because the industry has made underwriting so tight it has taken care of that itself.
He is worried the Consumer Financial Protection Bureau would feel it needs to make lending “even safer” than it already is.
“Saner” heads should prevail and the rules should not be “as ridiculous” as they could be, he continued.
Once private investors know what the rules are for the qualified mortgage, nonagency mortgage products should come back into the marketplace. Even Carrington is looking into having a nonagency product, Sharga said.
Another cloud is Basel III, which if implemented in the United States, could squeeze out small lenders, he said.
There is a realignment taking place in the mortgage business as large banks continue to pull out of mortgage lending, especially in the third-party origination channels.
And tighter credit standards will make getting conforming loans more and more difficult for consumers.
Sharga calls this an opportunity for mortgage brokers because they are best in finding the loan product that works for the consumer.