After weathering a tough 2014 marred by a sluggish housing market, lenders see a brighter picture ahead in 2015, with many industry observers describing themselves as cautiously optimistic about the coming year.
Though overall home sales have dipped slightly this year – the most recent data provided by The Warren Group, publisher of Banker & Tradesman, show single-family home sales down 2.4 percent through November in the Bay State – brighter economic news both locally and nationally has lifted lenders’ spirits in recent months, with gas prices and interest rates down and job growth sharply up.
“My gut tells me we’re going to have a strong spring market. People are feeling more settled in their lives, more secure in the world, so I do think we’ll see more people putting their homes on the market, and therefore more inventory for the first-time buyers who until now have been kind of iced out,” said Amy Tierce, regional vice president for Wintrust Mortgage in Needham.
That sentiment matches other experts’ estimates: In a recent forecast, the Mortgage Bankers Association predicts origination volume will rise 7 percent in 2015, to $1.19 trillion. However, a strengthening economy might not be all good news; in recent speeches the Federal Reserve Bank has dropped more than a few hints that it’s preparing to raise interest rates this spring on the basis of renewed strength in the U.S. economy.
After years of low rates – including some recent weeks of sub-4 percent rates – lenders seem sanguine about the prospect of rates inching back up again, however.
“Higher rates later in the year could move some people off the fence,” into purchasing said Brian Koss, executive vice president of the Danvers-based Mortgage Network.
New Forms, New Regs
Higher interest rates in the second half of the year aren’t the only potential obstacle for lenders in 2015. On the regulations side, one more major change mandated by Dodd-Frank still looms: In August, new government forms disclosing a loan’s terms and costs, both at the initial application and estimate and during the closing, will be required. The new docs attempt to meet in two forms the legal requirements and disclosures required by the Real Estate Settlement Procedures Act (RESPA) and the Truth In Lending Act (TILA).
The Consumer Financial Protection Bureau (CFPB) has gone through an extensive testing process and believes it has come up with documents that are easier for consumers to understand. But what worries lenders is the effect the new requirements will have on closing timelines: In an effort to make sure consumers aren’t blindsided by unexpected charges or changes to a loan’s terms at the closing table, the new rules require that consumers be given the information documenting the loan’s final terms and costs three business days before the closing itself.
For an industry that had long been used to making tweaks to the loan documents up to the day of the closing to respond to changes in the interest rate environment or investor’s overlays, adjusting to locking down all such details several days in advance will be a challenge – even more so given that if it is necessary to make a last-minute change to the loan’s terms, new forms will have to be issued and the closing delayed in order to give consumers the mandated grace period to review the documents. Several lenders expressed concern that while they’re already gearing up to adapt, their partners in the transaction, including real estate agents and attorneys, may not yet be up to speed on what changes will mean.
If agents expect they can simply get the lenders they work with to make a few phone calls or pull a few strings to make last-minute changes and meet a closing deadline, they may be in for a rude surprise come August, Koss said, and the sooner they understand what they’re up against the easier it will be for the industry to adjust to the new rules.
Refi Dive Still Damaging Expectations
Any changes which could put a damper on purchase volume could have a dire impact on the industry’s fortunes in the coming year. All of the increase in 2015 origination volumes projected by the MBA is down to increasing strength in on the purchase side, with the trade group forecasting purchase volume will rise to $731 billion from an estimated $635 billion in 2014. It thinks refinances will continue their downward trajectory, dipping further to $457 billion from $471 billion in 2014. In contrast, in 2013 refis made up about $1.08 trillion in volume.
That deep dive in refi volume is still having a painful impact on the industry. Earlier this month, 1st New England Mortgage Corp. filed for Chapter 7 bankruptcy, and some fear other firms may follow.
“I think there’s a lot of nervousness on the origination side about the stability and security of their companies. There are no more refis,” said Tierce. “2014 was definitely a tough year, and I think a lot of people haven’t even admitted to themselves how tough it was. Everyone is resetting their expectations of what’s a top producer, what’s an average producer – expectations are ratcheting down to a certain degree.”
