by rick Tobin
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By Rick Tobin
Real estate financier
First Financial Bancorp
Tapering Expectations for 2014
new regulations and Fed policies will shape mortgage-business trends this year
Will the federal reserve taper off its quantitative-easing (QE) policy that has bolstered
home values and kept mortgage interest
rates low? Will new regulations brought
by the Dodd-frank Wall Street reform
and Consumer Protection act dry up the
credit for smaller borrowers and make it
tougher for smaller lenders to compete?
are expectations for a robust housing
market too optimistic? These issues
could help, or hinder, the economy in
general, and the housing market in particular, and mortgage originators and
brokers should pay attention to them
through the rest of this year.
New regulations that came into effect
this past January could reduce loan options for smaller borrowers and harm
smaller lenders, while steering more
business to big banks. With the recent
implementation of the qualified mortgage (QM) guidelines, lenders must
analyze a prospective borrower’s ability
to make the monthly mortgage on time
and repay the loan.
Dodd-frank brought two big changes.
beginning this past January, banks and
mortgage companies were to be prohibited from approving residential mortgage loan requests for any borrower
with debt-to-income ratios higher than
43 percent. banks also were to limit the
cumulative originating mortgage fees
to no more than 3 percent of the total
loan amount. The new 3 percent cap
rate for combined banking fees, such
as loan fees, title and appraisal, could
reduce smaller loan options for borrowers. Many banks may be reluctant to offer smaller, $100,000 loans as they are
confined by the cap to charge less fees.
QM policies also could restrict the
smaller community banks’ lending op-
tions. Traditionally, community banks
offered more flexible underwriting
guidelines for property and business
owners in their neighborhoods. al-
though community banks might worry
about future litigation for refusing to
lend to qualified buyers, they could be
even more concerned about offering
loans to less-than-perfect borrowers.
another consequence of tighter regulations is that the big banks, such as
bank of america, JPMorgan Chase and
Wells fargo & Co., may pick up a bigger
share of the residential lending business. That’s partly because big banks
can handle substantial lawsuits over
violations of QM policies linked to the
Consumer financial Protection bureau
(CfPb) and Dodd-frank.
With even more challenging QM regulations, the top five financial institutions may fund a higher percentage of
residential loans nationwide. With less
competition from small to midsized
banks, the big banks might be able to
charge higher rates and fees. Consumers tend to be hurt when the access to
capital is tightened.
Dodd-frank created new rules for
seller financing, potentially making it
harder for seller lenders that want to
carry a first mortgage or offer creative
wraparound mortgages to prospective
buyers, such as contracts for deed or
all-inclusive deeds of trust.
Seller lenders can no longer offer a
residential mortgage loan without first
making a reasonable and good-faith
determination that the customer has
the ability to repay the loan. The seller
also has to meet the following guidelines before offering terms:
1. The seller did not build the home.
2. The loan must be fully amortizing.
balloon payments are prohibited.
3. The loan must have a fixed interest
rate for five years.
4. The loan also must meet other
guidelines established by the fed-
eral reserve board.
Seller lenders are exempt under
Dodd-frank if they sell less than three
properties each year.
Sadly, the Dodd-frank regulations
of 2010, 2013 and 2014 have restricted
options to buy and sell residential properties with either conventional or nonconventional forms of financing offered
by banks and sellers. The boom-and-bust housing cycle over the past 100
years has followed the same pattern.
In upswings, buyers have easy access
to credit, while in downswings they do
not. The vast majority of homebuyers
need financing options to purchase
The fed’s QE strategies bolstered
home values in the past two years.
after seemingly creating money out of
thin air, the fed and its affiliated financial institutions and investment groups
were able to purchase trillions of dollars of stocks, bonds and mortgages.
The fed has been the primary buyer
of stocks, bonds and mortgages for
several years now. The fed’s desire to
purchase more U.S. Treasuries drove
down the 10-year Treasury yields. This
paralleled declining 30-year, fixed
mortgage rates. QE polices had a net
positive effect on the stock market,
Rick Tobin is a real estate financier at first
financial bancorp. He has had an experienced and diversified background in real
estate and financing for more than 25 years.
He has been published nationally in magazines, newspapers, websites and newsletters. Tobin also appears as a primary guest
on television shows. Tobin and his associates can finance residential and commercial
properties around the U.S. with debt, equity
and mezzanine money. Visit realloans.com.
reach Tobin at firstname.lastname@example.org.
This past year, the federal Housing
administration’s (fHa) loan fees increased a few times, with the fHa citing high default rates in mortgage loans
nationwide as a reason. fHa loan losses
were so significant that fHa sought a
$1.7 billion government bailout this past
October to stay afloat. Government-backed or insured loans, such as those
from fHa, the U.S. Department of Veteran affairs, the U.S. Department of agriculture, freddie Mac, and fannie Mae,
made up as much as 97 percent of all
funded residential mortgage loans in
recent years. Higher fHa fees and rates
may reduce the availability of capital for
moving the Dow Jones Industrial
average higher than 15,000 points this
Home prices increased by double digits in some areas. In some of the “
bubble state” regions, such as California,
Nevada and arizona, home prices shot
up 20 percent to 35 percent in less than
a year. This came about because of record, or near-record, low mortgage rates,
an artificially suppressed home-listing
inventory, and an increasing number
of all-cash buyers. This group included
individuals, hedge funds, investment
companies and foreign investors. These
buyers accounted for as much a 50 percent of all homebuyers in some regions.
When fed Chairman ben bernanke
said several times this past year that the
fed could curtail QE policies to reduce
the cash infusion, stock prices began
to fall and mortgage rates increased.
QE policies are a double-edged sword.
“Although community banks might
worry about future litigation for refusing to
“is What’s Past Prologue?”
lend to qualified buyers, they could be even
more concerned about offering loans to
residential Edition, December 2013
“a road Trip to hotel recovery,”
Commercial Edition, November 2013
“ 10 reasons to Pour Money into Multifamily,”
Commercial Edition, October 2013
“a Tale of Two Markets,”
residential Edition, august 2013