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Lending

Lenders search for plan B

Rising rates, competition fuel other lending avenues

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Lenders and borrowers are looking to other avenues of borrowing as mortgage rates continue to rise and competition heightens among financial institutions.

Rising home prices have helped bolster lender confidence, giving them a greater margin of cushion and fueling demand for home equity lines of credit, Bankrate Senior Financial Analyst Greg McBride said.

This rise in demand for HELOC loans is boosted by McBride’s prediction that the economy will continue to improve and the Fed will continue to wind down their bond purchases.

As a result, he believes it will lead to a consistent rise in mortgage rates throughout the year.

According to Freddie Mac’s latest primary mortgage market survey, the 30-year fixed-rate mortgage averaged 4.53% for the week ending Jan. 2, 2014, slightly up from the last week of December when it averaged 4.48%.

"Last year, when you saw a big jump in rates, it took a big bite out of demand," McBride explained. "If you see a slow steadier grind and a good economy, it will not have a huge impact on demand."

And lender predictions are not too different.

"We anticipate that rates will continue to rise; the falling rate market is a thing of the past,” said Jon Maddox the president of ClearVision. "We are anticipating that the economy will continue to heal and more people will come into the market."

However, Maddox cautioned that the improvements in unemployment still hold some uncertainty. The most recent jobs report revealed a drop in jobless claims, but the data was clouded with holiday adjustments. 

Not all lenders are adequately prepared for the challenges that come with the implementation of the qualified mortgage on Jan. 10, or for the shift to a purchase driven market, which could significantly hurt lender’s business, Maddox said.  

But the new year might start to feed a new part of the market: non-QM loans.

While ClearVision believes it can acclimate to the new regulation, Steve Curry, executive vice president and chief operating officer of ClearVision, said a non-QM product will eventually hit the market since credit it still pretty tight.

Depending on the way QM audits and exams turn out, it could help drive the non-QM market, Maddox said.  

"Lenders will find opportunities out of the mainstream," Maddox said."If the Consumer Financial Protection Bureau and QM stay staunch and inflexible, the products will have to go somewhere, and it will find its own level at some price."

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