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Nonbank mortgage firms may return in 2014: S&P

Housing to remain key part of the recovery

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The year 2014 is unlikely to put a damper on the U.S. housing recovery, although analysts with Standard & Poor’s are unable to completely diffuse fears of another recession.

The ratings giant published its U.S. Housing and Residential Mortgage Finance outlook for 2014, showing positive predictions for next year’s economy and a 15% to 20% risk of a recession. The slight recessionary risk is to be taken with a grain of salt because overall the report is very positive for housing.

With negative home equity falling and S&P analysts forecasting a 6% increase in the S&P Case-Shiller 20-City Home Price Index in 2014, housing is expected to carry on—albeit with a few adjustments as new mortgage rules hit and the Federal Housing Finance Agency continues to build a new mortgage securitization structure to bring private capital back into housing finance. 

So what will change?

In terms of mortgage rates, the forecast is staying relatively stable despite the Fed’s recent decision to begin tapering its purchases of mortgage-backed securities. S&P still only forecasts a 30-year, fixed-rate mortgage increase from 4.2% in the fourth quarter of 2013 to 4.6% in 2014. 

And housing as a key economic indicator is not going away. It will remain a focal point of the recovery as more non-bank firms come back into the market to handle originations and servicing.

"This is driven by capital rules and the increase in nonbank lenders," the S&P report noted.

But there are risks ahead considering the coming launch of the Dodd-Frank lending rules. This alone could restrict mortgage availability, S&P says.  

"Even as building permits and new starts continue to grow, the availability of financing remains the lynchpin as we hover around a 64% home-ownership rate," the report explained. The other problem is how much of the market the government currently controls.

Right now, the GSEs and FHA are buying or insuring most originations. S&P says while that has helped spur along the recovery, "the lower-than-average homeownership rate and swarm of investor purchases might or might not be a long-term model for US housing."

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