Thanks to a combination of rising mortgage rates, tighter underwriting guidelines, and sweeping government regulation, home buying is unlikely to get any easier and may, in fact, get much more difficult in 2011. Looming over the mortgage market are provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that have yet to be finalized. Among them is a requirement that mortgage lenders maintain some “equity" in the mortgages they originate, by holding at least 5% of the credit risk, rather than bundling the loans and selling them off entirely.
The goal is to discourage a repeat of risky past practices, but the legislation makes an exception to the risk-retention standard for what is labeled a “qualified residential mortgage.” (QRM) It is the still-unspecified definition of this type of loan that has lenders scrambling. “People have some very different ideas of how to define this,” said Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association. “Some would say if it doesn’t have a 30% down payment, it’s not a QRM. For a first-time home buyer, that would really be eye-opening. It definitely has the potential to turn the market upside down. This could dramatically tighten underwriting much more than what the lenders have already done. It’s going to make it even tougher to work through the housing overhang.”
“If you have to have 30% down, the American dream would become the American fantasy,” said one lender in Illinois. Additional regulation on mortgage bankers will mean a thinning of their ranks, weeding out the unscrupulous players. But it also will lessen consumers’ ability to comparison-shop widely for the best home mortgage product.
Another wrinkle to the mortgage market is that beginning in March, Freddie Mac will raise fees for mortgages sold to Freddie that carry higher loan-to-value ratios. The additional fees will vary depending on the borrower’s credit score and the loan-to-value ratio, but in some cases the upfront fees will increase by as much as 0.75% of a loan’s balance. If a lender passes along a 0.25% fee to the borrower, it could add about $10 to the monthly payment on a $200,000 mortgage, according to Freddie Mac. In late December, Fannie Mae announced its own series of considerable loan-level price adjustments, effective April 1, for mortgages with greater than a 60% loan-to-value that will apply even to consumers with credit scores above 700.
Rates also are rising. The forecast for 2011 for a 30-year, fixed-rate mortgage is slightly under 6%. That could definitely change the affordability ratios of buyers who were approved when the rates were 4.25% this past year.
If you want to buy in Hawaii Kai this coming year - and see the market numbers for why you shouldn't wait - then find a reputable lender and get pre-approved, not just pre-qualified. Know your buying power and then start looking. I can recommend experienced Hawaii lenders and email you information on any Hawaii Kai condo or neighborhood. Let's get started!
Barbara Abe, Realtor