If residential lenders didn’t have enough to worry about—qualified mortgage rule, loan officer compensation, servicing standards—they now have the “fiscal cliff” and the mortgage interest deduction to lose sleep over.
But keep in mind that housing finance can sometimes be countercyclical which means when the rest of the economy is in the tank, residential lenders do just fine (because rates are low). And right now, mortgage bankers are feeling pretty good about the months ahead after coming off a quarter in which $486 billion of new loans were written—the best quarter of the year.
“I have not heard of a single person holding off on a home purchase because of the possibility of the country falling off the fiscal cliff,” said Jim Picard, vice president of home loans at Denali Alaskan Credit Union, Anchorage. “I just talked to one of the top Realtors in Alaska and his experience is the same.”
Rick Sharga, executive vice president of Carrington Mortgage, said his company’s volume is off month-over-month “but we’re attributing that partly to seasonality, and partly due to the fact that October was a very good month for us.”
Sharga added that it’s hard to imagine that “the fiscal cliff would affect refi volume, which represents the lion’s share of what’s being written today. In fact, in a perverse way, it probably ought to stimulate refi activity. And while it could certainly hurt purchase loan volume, it seems early in the cycle for that to be happening.”
Don Henig, a top executive at Mortgage Master of Massachusetts, believes that if anything the fiscal cliff might spur more borrowers to refi now instead of waiting. He notes that if a deal is struck to avoid the cliff, rates might actually spike.
“Are apps falling because of the fiscal cliff?” asked Henig. “No. They’re off because of [Hurricane] Sandy, and the holiday season, not the cliff.” Most of Mortgage Master’s volume comes from New England states and the mid-Atlantic though it is rapidly expanding into other markets.
Meanwhile, lenders are concerned that Congress and the White House—as a way to find new revenue and avert the cliff—might cap the mortgage interest deduction, depressing a still-recovering housing market. But there is also a growing hope that when Washington finally acts, it will cap the dollar amount of all deductions and not necessarily the MID.
According to MBA chief economist Jay Brinkmann, the MID costs the U.S. Treasury $100 billion a year in lost tax revenue. The figure comes from the Office of Management and Budget, but according to Brinkmann, the estimate is both high and outdated.
As might be expected, lenders are focusing their lobbying efforts on the damage to housing that might occur if the deduction were reduced to, say, $500,000 from the current $1 million.
“Clearly everything should be debated,” MBA chief David Stevens told National Mortgage News, “but this decision will have long tentacles deep into the U.S. economy.”
Stevens and Brinkmann believe that if the MID is reduced it will hurt home sales in certain key segments of the housing market. “Can we live with that?” asked Stevens, rhetorically.
One lobbyist, requesting that his name not be used, said he’s hopeful the White House and Congress will work out a deal where all deductions—not just the MID—will be capped at $25,000 to $50,000 per year per filer.
“If you go after deductions line-by-line it can get really difficult,” this source said. “And nothing will get done.”