Rates are attractive to borrowers but lenders are finding the advantage of the housing market's low prices more difficult to explain to them, Scott Stern, chief executive of the St. Louis-based Lenders One cooperative, told this publication.
Borrowers are having trouble seeing “that it is not the best strategy if you wait to time the bottom in terms of prices” as rates could be significantly higher when that happens, raising their total cost of ownership.
Origination activity has picked up somewhat as a rate advantage surfaced somewhat recently even for some borrowers who have refinanced over the past 36 months, he said.
Also some reasonable loosening of what has been inordinately tight underwriting has meant even those not able to refinance over that period due to insufficient property value or some other reason have had more of a chance of being eligible lately, said Stern.
Underwriting guidelines, he said, are “still too tight but they are loosening. They are going in the right direction.”
Stern said he is pleased the market has been moving closer to a point where, outside of those with lingering employment/payment woes and significantly underwater loans, “almost everyone in America with decent credit can refinance with a mortgage today.”
While origination has picked up to some extent due to rate-driven refinancing, when it comes to purchases, “the story is not quite as good.
“We are still seeing real sluggish activity around the country despite low interest rates as people remain concerned about declining property values,” Stern told this publication. “Nobody wants to buy today when the property could be worth less tomorrow.
“My response to that is that that's not the best strategy,” he said. “If you wait to time the bottom in terms of prices when interest rates are significantly higher your total cost of ownership then will be higher than it is now. We think it's a great time to buy. We need to get the message out that now is the time to buy, even for people concerned about future price depreciation.”
Stern said he thinks current market conditions will persist for at least the next six months. As long as the economy remains sluggish he expects rates remain low.
While there is debate as to whether things are more advantageous for non-depositories or depository institutions in the current market and regulatory environment, Stern thinks some things are worse for depositories than non-depositories, but the reverse also is true.
“In this marketplace, the best thing you can have is capacity to serve your clients,” he said.
Stern told Origination News among the ways his cooperative is helping is by, for example, offering a program which provides daily feedback on customers eligible to refinance based on current rates that can be installed by companies through a customized portal that works in conjunction with their loan origination system and customer relationship management technology.
Key issues for the industry continue to revolve around ongoing significant legislative changes and like many he is particularly focused on what the final, official definition for a “qualified residential mortgage” will be.
Among the positions he takes on what the QRM should be is that downpayment ratios should be part of it, saying these have not been proven to have a correlation with default.
He is concerned about what has been the planned lowering of the loan limits that was still moving ahead at press time, calling it “a real step in the wrong direction when it comes to the recovery of the American economy.”
Already, “the lack of jumbo financing is a major problem in communities all across America,” Stern said to this publication, and if loan limits drop, “then you get into nonagency jumbos on more moderately priced houses.” This could create a financing shortage in medium-priced housing markets, he said.
Even higher-priced home sales affect lower-priced housing because “every home transaction is part of a ladder of transactions.” Cutting off financing to an expensive home “shuts down everything in the path, including that first house to the first-time homebuyer.”
Stern said market participants are starting to get a little more comfortable loan officer compensation but he feels there has been “a dramatic shortage of guidance even though [almost] everybody has successfully implemented a plan.
“There is a fear you won't even know you have broken rules until somebody comes and tells you. There could be unintentional noncompliance, people are concerned about that,” Stern told this publication.
With the new Consumer Financial Protection Bureau there could be more uncertainty ahead for this and regulation in general.
But Stern said he believes it is at least starting off on the right foot with the industry.
“My sense is that people are looking forward to working with the CFPB [and] also feel like quality mortgage banking survivors...will work hand-in-hand with the CFPB to secure integrity mortgage industry in the future.”
