For starters, home prices likely will
be hampered when mortgage rates in-
crease. One guideline sometimes used
in the industry is that every 20-percent
increase in mortgage rates must be ac-
companied by a 10-percent decrease
in home prices. In other words, if rates
move from 5 percent to 6 percent, home
prices (and in turn, mortgage-loan
amounts) must decrease by 10 percent.
that doesn’t bode well for home-price
appreciation. before we go too far, how-
ever, let’s also consider that from 1968
through 2009, the average appreciation
rate for existing single-family homes
was 5. 5 percent annually, according to
the National Association of realtors
(NAr). that means that single-family
homes increased in value at a rate
slightly greater than the inflation rate
of a properly functioning economy.
According to NAr, home-value ap-
preciation is typically 1 to 2 percentage
points greater than inflation. For exam-
ple, annual inflation in the U.S. for all
urban consumers fluctuated between
1.6 percent and 3. 4 percent from 1997
through 2007, according to the U.S.
Department of Labor.
On the other hand, in the past three
years, home values have decreased
by 25 percent or more in many areas.
Just before that span — i.e., during the
real estate boom — the average annual
appreciation rate in many markets was
greater than 15 percent. back then,
« TRENDS continued from page 34
some prognosticators warned that
such a market was unsustainable. It
turns out they were right.
the good news is that with the stock
market looking shaky — and with banks
paying less than 1-percent interest for
12-month certificates of deposit —
real estate remains a good place for
investors to park their money. Many
consumers who lost big on the previously inflated market, however, might
disagree.
“Predicting
price trends
for the next two to 10
years, however, remains
extremely difficult.”
then again, many real estate agents
and homebuilders believe that widespread home-price appreciation will
return in the final three months of this
year. In many cases, however, these
opinions are structured in hopes of
igniting appreciation so that business
and profits pick up.
Some top economists, on the other
hand, believe home prices will remain
flat until 2012, when they will start im-
proving at a slow rate — perhaps 1 per-
cent to 2 percent annually — for five or
six years. Only then, they say, will wide-
spread yearly appreciation above the
inflation rate return.
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« RISK continued from page 36 today’s technology products can validate thousands of data points in- stantly, but not all are created equally. You must do your research before mak- ing an investment to ensure that: • Your;third-party;vendors;integrate fully with your existing systems; • Technology;products;are;scalable and upgradable; • Compliance;products;come;with live;support for specific scenarios; • Loan-processing;software;provides ongoing;updates and patches to keep systems current; • Fraud-mitigation;engines;aggre- gate;your;data and allow you to cus- tomize results; and • Property-valuation;models;are;up- dated;within;14;days and include current chains of title, lien histories, detailed information on the sources of comparables and current listings for accurate valuation in the real es- tate-owned marketplace. Back to the basics According to agency loss-mitigation executives, loans originated using common-sense under writing practices will more likely perform well in the long run. Much discussion is being held surrounding credit overlays, which are simply lenders’ additional credit re- quirements layered on top of Fannie Mae and Freddie Mac guidelines. When it’s all said and done, the stan- dards that have been in place for many ears still serve as effective means for
assuring loan quality. there is no sub-
stitution for having an experienced
underwriter simply re-verify informa-
tion provided and evaluate credit-
worthiness and valuation thoroughly.
“Mortgage lenders and the
agencies want to know you
have the proper
procedures in
place to identify where
risk is present and
to resolve potential
problems successfully.”
Mortgage lenders and the agencies
want to know you have the proper procedures in place to identify where risk
is present and to resolve potential problems successfully. there certainly will be
files that cannot and should not be approved for funding. If you are not identifying and removing these loans from
your pipeline periodically, you should
take a closer look at your procedures to
see what you are missing.
bad loans impact everyone in the
industry, and your business is no different. What sets successful mortgage
brokers apart is their commitment to
quality and good old-fashioned risk-management practices. •
