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NAR: Top Lenders Forecast Housing Market Gains Despite New Ability-to-Repay Rules
NAR President Gary Thomas and CEO Dale Stinton moderated the candid discussion Sunday, Nov. 10, 2013 during the “Straight from the Top: Insights from Lending Leaders” session at the 2013 Realtors® Conference and Expo, in San Francisco, where the top mortgage industry executives expounded on new regulatory hurdles that could temporarily restrict lending to some buyers, but will likely even out over time.
The Qualified Mortgage, or ability-to-repay rule, will become effective in January 2014 and contains a number of underwriting standards that will constrict mortgage availability and deny credit to some first-time homebuyers, said Bill Emerson, CEO of Quicken Loans. The QM rule requires significant documentation from consumers to justify lenders’ underwriting decisions; lenders face strict penalties if a loan is made outside of the specific criteria.
Kevin Watters, CEO of JPMorgan Chase, agreed that lower- and moderate-income buyers, as well as self-employed buyers who don’t have a consistent flow of income, might have a tougher time in the new lending environment. “We need to work together to help first-time buyers into affordable housing options.”
“It’s important for Realtors® to be educated about the new documentation requirements so they can work with buyers and meet lender expectations,” said Matt Vernon, home loan sales executive for Bank of America.
Mike Heid, president of Wells Fargo Home Mortgage, added that Wells Fargo is using new technologies to create learning tools to help consumers prepare to be homeowners, even before they find the house they love.
The new lending standards and documentation requirements are making some potential borrowers anxious about competing with cash buyers in the real estate market. Thomas asked the panelists to share their average approval timelines.
Vernon said that in California, Bank of America’s mortgage loan officers can process and approve loans in 16 days and always strive to quickly deliver approvals. He said that the approval process can move more swiftly when borrowers are educated about lender’s application requirements.
“Our mission is to get someone approved. With clarity and transparency, buyers will know exactly what is needed of them. We want to do this in a manner that is as stress free as possible for consumers and Realtors®,” said Emerson.
Heid agreed and said, “The way to compete against a cash buyer is to build a process that has no surprises as you go.”
Stinton turned the conversation to the debate over reforming the secondary mortgage market and asked the lenders whether they fear the risk of mortgage security “putbacks” and how that impacts underwriting. A putback occurs when a bank is liable for misrepresenting the creditworthiness of a borrower to the entity that buys the loan, and the bank is forced to buy back the mortgage.
Watters said fears over putbacks are real and Heid agreed. “The putback fear is still there and we’re working to put it to rest,” said Heid. “The time is right for that. If the government-sponsored enterprises weren’t in conservatorship, the issue of put backs wouldn’t be there. We need a world where everything is more of a natural market and we need competition with Fannie Mae and Freddie Mac. The conservatorship should end.”
Thomas followed up by asking whether immediate steps should be taken to reduce the government role in the housing finance market. Emerson said that the security of their guarantee needs to stay, not the actual government entities.
“I think if we want the 30-year fixed-rate mortgage, you need the government guarantee,” said Watters. “The 30-year fixed-rate mortgage needs the government guarantee because not all banks can soak up the size of the market.”
When asked whether private investors are ready to take a bigger role in the secondary mortgage market as the government’s footprint shrinks, the executives provided varied responses. Heid said that more certainty is needed before taking action.
“We’ve already started to do some private label securities,” said Watters. “People are getting back into the marketplace, which is a good thing. We might not be ready to take it all on, but we are headed in the right direction.”
The lending leaders unanimously agreed that consumers will see a healthy increase in the market next year, keeping pace with gains made in 2013. Mortgage originations will dominate the 2014 housing market as interest rates creep up and refinancing trends downward.
Heid said that while home values will continue to increase as the market continues to heal, the economy is the wild card and the downturn would be a game changer. “In spite of the economic crisis, Americans still want to be homeowners. That hasn’t changed one bit,” he said. “Homeownership is at the heart of what we do and that is worth preserving.”