The definition of insanity is doing the same thing over and over and expecting different results. ~ Benjamin Franklin
Monroe County mortgage originations in May continued at ten year low levels. The national media reports that despite a few signs of improvement, foreclosures continue to be a problem and the housing market is in danger of slipping back into a downturn. Credit is hard to come by unless you don?t need any. Mortgage fraud continues to make headlines. After several years of living through the mortgage crisis, what?s really different?
Well, for starters, there?s a lot more regulatory overhead. I don?t need to tell you that. But for all the new rules and procedures, there?s one characteristic of the mid?2000?s mortgage boom that hasn?t changed. That would be absentee lending?loans both originated and funded by persons and entities with no physical presence in the community. In fact, the increasing use of the Internet is probably accelerating the growth of this mortgage distribution channel.
Is anyone surprised that many problem and fraudulent loans were originated and processed by community outsiders without local concern or knowledge of the viability of the transaction or the parties involved? Think about it. The originator is in a call center cube farm in California. The appraiser is from Muncie and her name is drawn from a hat by a vendor manager in Pennsylvania. The lender is in North Carolina and the investor is on Wall Street. The title and closing agent is in Florida and the notary signing agent drove one hundred miles to meet the borrower at the north side McDonald?s. Is it any wonder then that no one can smell out an otherwise fishy deal? Fortunately, the incident of fraud in Bloomington is minimal. But up the road in Indianapolis, it?s all too prevalent.
Maybe the mortgage business futurists are correct. Someday all mortgages will be originated without a local connection. I just don?t see it happening; especially with pending regulations requiring the originator to retain some of the lender?s risk. The long terms costs (both actual and lost opportunity) of managing risk coupled with defaults and fraud will, in my opinion, exceed any short term benefit of economies of scale this form of distribution brings to the originating process. Some absentee lenders and their service providers will continue tweaking this business model in hopes of achieving a different result.
??We demand rigidly defined areas of doubt and uncertainty!?
~ Doug Adams
Trying to figure out what?s in store the next few months for the local mortgage finance industry? Good luck with that! The only certainty is conflicting influences. The spring home purchase market is stronger but will it be offset by expiring federal homebuyer tax credits? A return to fifty-year low mortgage interest rates in the face of the Federal Reserve discontinuing its purchasing of mortgage backed securities? How does that happen? And let?s not forget that many mortgage borrowers who could benefit from refinancing no longer qualify for new loans due to more restrictive underwriting guidelines.
The purchase market through April (as measured by recorded deeds) improved by about thirty-three percent over the same four months of 2009?508 versus 382 last year. But that is well short of the 672 deeds in 2008. And we thought 2008 was weak! The federal homebuyer tax credits certainly accelerated home buying. There?s little evidence though that the credits actually increased the number of buyers in the market. The Mortgage Bankers Association reported that new purchase applications fell to their lowest weekly level in thirteen years just two weeks following the tax credit April 30th deadline. In our own shop, we have very few purchase orders in the pipeline with post June 30th closing dates. Let?s hope that all we experience is a mere slowdown and not a grinding halt.
Mortgage interest rates for 30-year fixed rate loans are returning yet again to sub-five percent levels. This contradicts all the conventional wisdom earlier this year. Most experts thought that rates would increase once the Federal Reserve got out of investing in mortgage backed securities. I?m guessing we can thank the European debt crisis for them actually declining. Somehow though, the phrase ?flight to quality? doesn?t have the same ring to it as in years past, does it?
According to the Wall Street Journal? this week, larger markets are already seeing an increase in refinancing. Maybe we will too? Unfortunately there are still many borrowers diligently making their monthly payments on their mortgages at higher interest rates. These borrowers are not able to benefit from refinancing because they no longer qualify for the mortgage they have. Their equity is not enough, their credit score is no longer satisfactory, or their property will no longer appraise. This reality is clearly evidenced in the ten year low of local mortgage originations so far this year. There appears no solution. Fear of making a bad loan is stronger today than the benefits of making a good loan.
The market could turn in a lot of ways. I won?t be surprised to see purchase activity slow down significantly until people realize that even without a tax credit, low rates make it a great time to buy. I?m optimistic that refinancing will increase some.
The only thing that I?m sure of though is that I?m not sure of anything.
Never mistake activity for achievement.? ~ John Wooden
In? the? real? estate? finance? business? there?s? still? a? disproportionate? amount? of? energy? being? expended?relative?to?the?number?of?loans?being?made.?Of?that?I?m?certain?after?looking?at?the first?quarter?numbers.?Our?historical?barometer,?mortgages?with?a?stated?amount?between?$50K? and?$500K,?was?only?marginally?better?than?2008?s?dreary?fourth?quarter.?In?fact?the?totals?are? the? smallest? first? quarter? in? the? last? ten? years.? Yet? due? to? new? compliance? and? regulatory? overhead,?we?all?feel?like?we?re?treading?water.
As?far?as?the?federal?homebuyer?tax?credits?are?concerned,?there?s?no?evidence?yet?that?they?re? actually?bringing?more?buyers?into?our?market.?A?closer?look?at?the?sales?disclosures?filed?with? the? State? of? Indiana? Department? of? Local? Government? Finance? in? the? first? quarter? of? 2010? is? enlightening.?Surprisingly?to?me,?the?number?of?disclosures?that?designated?the?property?as?the buyer?s?new?residence?is?almost?identical?to?the?number?filed?as?such?in?the?first?quarter?of?2009.
Encouraging? though? is? that? the? trend? of? new? foreclosures? being? started? in? Monroe? County continues? to? decline.? Eventually? that? will? be? reflected? in? a? smaller? number? of? homes? lost? at sheriff?s?sale.?As?the?overall?real?estate?market?improves,?more?foreclosure?victims?will?be?able?to sell?out?of?their?troubles.
The?biggest?drag?on?the?market?seems?to?be?in?the?higher?price?ranges.?I?included?a?chart?this month? of? mortgages? with? a? stated? amount? between? $417,001? (the? confirming? loan? limit)? and $1,500,000.?Several?years?ago?these??jumbo??loans?were?the?darling?of?mortgage?investors.?Post financial?crisis?though,?there?s?been?very?little?money?available?in?this?market?segment.?Although
not?great?in?Monroe?County?s?overall?numbers,?this?lack?of?availability?is?sitting?like?an?anvil?on the?entire?top?half?of?the?market.?It?prevents?move?up?buyers?from?financing?purchases?and?is significantly?responsible?for?the?current?over?abundance?of?home?choices?in?upper?price?ranges.
The? homebuyer? tax? credits? are? expiring? and? the? Fed? is? no? longer? purchasing? mortgage? backed securities.? The? second? quarter? will? be? very? telling.? I?ll? be? watching? closely? to? see? the? effects
locally? on? the? number? of? transactions.? Hopefully? recent? optimism? will? be? fulfilled? and? the problem?areas?of?the?market?may?ease.
?Bureaucracy defends the status quo long past the time when the quo has lost its status.?
~ Laurence J. Peter
Thank?you?regulators!?This?month?s?commentary?is?dedicated?to?all?the?fine?state?and?federal?regulatory agencies?whose?actions?kept?me?from?worrying?about?a?decline?in?the?mortgage?market?the?first?two months?of?this?year.
Comparing?the?first?two?months?of?2010?to?the?same?period?of?2009?is?surprising.?Dollar?volume?of mortgages?with?a?stated?loan?amount?between?$50,000?and?$500,000?(mortgages?that?typically?represent first?mortgages)?declined?a?whopping?46?percent?from?$123?million?to?$66?million.?That?s?significant. In?fact,it?s?the?slowest?first?two?months?since?the?year?2000?when?only?$50?million?in?mortgages?were?originated.
The?Title?Insurance?Division?(that?s?the?TIEFF?fee?funded?regulator)?of?the?Indiana?Department?of?Insurance is?weighing?in?on?a?myriad?of?customary?title?industry?practices.?Clair?Voyant,?our?vice?president?of?things we?don?t?know,?is?busily?staring?into?her?crystal?balls?trying?to?predict?what?s?coming?from?that?direction.
?Any change, even a change for the better, is always accompanied by drawbacks and discomforts.? ~ Arnold Bennett
Many of us are directing an enormous amount of energy towards understanding and complying with the new RESPA rule changes. The new rule is over 100 pages long. The Department of Housing and Urban Development, the RESPA regulator, has issued about 60 additional pages of questions and answers in an attempt to help us. We understand the new rule better than we did six months ago. Even so a lot of uncertainty exists. Further clarification by HUD is needed.
I?ve followed RESPA implementation through on line resources and by attending seminars with a regional or national make up. I?ve talked with colleagues from around the country. The clamor from both sides of the closing table that the sky is falling is loud and often repeated in many markets. I guess when you do something one way since 1974 this reaction to change is not surprising.
In Bloomington, the lenders we deal with have taken a contrary and refreshing approach to RESPA. They?re not worrying about what they don?t like about the changes. They are successfully focused on serving their clients while balancing the competing interests of RESPA and Truth in Lending. My personal observation of the process with our closings is that lenders are striking a good balance. So congratulations to all our lender clients! Finding ways to work with the new rules will win you business and set you apart. We appreciate the opportunity to work closely with you to help develop procedures that allow us to meet the needs of parties in the transaction.
~ John Bethell