This year marks an unprecedented era of reform in the housing industry and opportunity for home buying. Obama signed the Dodd-Frank Act
into law granting federal regulation of the mortgage industry's biggest players and establishing numerous homebuyer incentives such as spring 2010's tax-credit option and the return of Section 502
allowing 0% down at the time of application.
The housing industry is witnessing the lowest recorded mortgage rates in history
, currently 4.5% for a 30-year and 15-year fixed-mortgage rate (FRM). Yet new mortgage origination volume is still well below what it was in 2003, when the market was in a similar state with then-record mortgage rate lows and trying to make a similar comeback.
A recent report from Freddie Mac
entitled "Where Have All the Originations Gone?" tries to identify why, in the wake of recourse, people in the U.S. are just not borrowing money to buy homes. One reason, says Freddie Mac, is because more buyers are paying in cash. According to the National Association of Realtors
(NAR), 25% of 2010 existing homes sales are all-cash transactions, compared to 5% to 10% several years ago.
Freddie Mac reported in its Quarterly Refinance Report that homeowners are also paying cash in at their time of refinance, over 20% in the first half of this year. The percentage of homeowners that acted equally in 2003 was less than 15%.
A second reason Freddie Mac suggests mortgage originations are lower than could be expected with so many conducive programs for lending is that home equity is consistently being eroded by home-value declines, relinquishing a borrower's qualification for a loan.
Freddie Mac said that refinance originations are falling short also due to borrowers having second liens, or a second form of third party securitization, on their homes. Some potential borrowers have found that getting their second-lien lenders to submit the necessary resubordination paperwork on time has been challenging, in some cases forcing borrowers to forego refinance altogether.
Freddie Mac predicts that fewer than 5m new and existing detached single-family home will be sold in 2010 thus decreasing the origination market even further. That prediction is 25% less than the volume of home sales in 2003.
"Whether on-the-fence homebuyers and potential refinancers will soon take advantage of the historic opportunities presented by the lowest mortgage rates in five decades remains to be seen," Freddie Mac said in a press release. "[B]ut we're not counting on a change anytime soon."
Write to Christine Ricciardi