The next year brings a bevy of unprecedented changes to the mortgage market as it shifts from a refinance to purchase business.
Despite all of this, in an environment of rising interest rates and tightening loan criteria, Freddie Mac still believes most of the nation's housing will remain affordable. The issue that remains, is getting responsible mortgages to the homeowners who deserve them.
Frank Nothaft, chief economist at Freddie, released the enterprise's 2014 outlook report in conjunction with a HousingWire webinar he participated in.
"The big shift ahead will occur as the single-family mortgage market begins transitioning from a rate-and-term refinance dominated market, to the first purchase-dominated market we’ve seen since 2000," Nothaft said. "The emerging purchase market should gather momentum in the coming year."
The webinar, titled Competitive lending in the Qualified Mortgage world, also took a hard look at the challenges lenders will face after the ruling comes into effect in January.
Craig Crabtree, general manager of Equifax Mortgage Services, spoke at length of the critical importance of underwriting and outlined the types of mortgage products that would likely be prohibited under the QM.
This aspect of great underwriting standards will need to be carefully balanced against the need to shorten closing times to under 30 days. Regional banks, for example, should re-approach their underwriting methodology to seek greater efficiency in writing new mortgages.
However, the panelists, who also included Equifax chief economist Amy Crews Cutts, stressed that even with all of these new restricitions in mind, customers should not be made to suffer.
Crabtree produced a slide, suggesting that 7% of homeowners surveyed would rather spend a night in jail than go through the mortgage process again. A full 23% of homeowners said they would rather gain 10 pounds than get a new mortgage.
Crews Cutts emphasized the need to close quicker in order to reduce the quiet period between when a homeowner commits to buying a home and when they close the mortgage. "In a case study of 105,000 mortgage applications, 14% took on new debt during the quiet period and 40% of those increase DTI by 3% or more," she said.
In another study of 2013 mortgage applications, Equifax found 20% of potential homeowners also carried undisclosed debt.
"That's important from a GSE repurchase perspective as well," Crews Cutts said.