The Predictions Issue: 2014

by Natalie Terchek

Competitive Housing Market Brings Fewer Foreclosed Homes

Because Houston’s housing market is so competitive, there have been fewer foreclosed houses on the market this year than usual, and signs show that it will remain this way for a while. 2014 will also set two major pieces of legislation in place, which will protect homeowners from the dangers of foreclosure. We talked to David Krichmar, a mortgage banker with West Star Mortgage, and Steven McGilbray, the vice-president of mortgage lending of Guaranteed Rate, and asked them about what next year will bring, in terms of lending.

HA: What’s going on with foreclosures/short sales this year, and what will happen in 2014?

David Krichmar (DK): Right now it looks to be the status quo. Though there are always rumors that banks and lenders have held onto foreclosed properties and may release them to the market this year, I believe that to a rumor for now. We do know by market reports that less folks are getting foreclosed on, hence that will reduce the foreclosure supply in the future.

Steven McGilbray (SM): Houston’s foreclosure and short sale market is quite competitive; with sparse inventory these homes receive multiple offers immediately after being listed.

As a consequence of market demands, lenders are wasting no time putting these homes on the market once they become available. Moving forward, the result of this will be a positive for Houston. As these homes are purchased, returned to a livable state and either sold or occupied by the buyer, we will see stability in our neighborhoods and in the value of homes there.

In 2014, we will see two major pieces of legislation set in place to protect homeowners in danger of foreclosure. Loan servicers are restricted from beginning foreclosure proceedings on any homeowner who is actively seeking a loan modification or other alternative to foreclosure. Any homeowner must fall at least 120 days behind on their mortgage payment before any servicer will be allowed to file the first foreclosure notice.

If a homeowner applies for a loan modification at least 37 days prior to when the foreclosure auction has been scheduled, the loan servicer is expected to consider and respond to the homeowner’s request. Additionally, the loan servicer must give the homeowner enough time to accept any alternatives prior to moving forward with the foreclosure sale.

HA: What’s going on with appraisals this year? What will happen in 2014?

DK: Appraisals as a whole should stay the same. In the Houston area, the appraisal values should be more in line with the market since more homes are selling at the higher prices. Versus the beginning of when the market started to take off with multiple buyers and people out bidding each other, but no comparable sales to back up the sales price.

SM: Although new legislation regarding appraisals will go into effect January 18, 2014, Guaranteed Rate already integrated the requirement as regulatory agencies were constructing the consumer protection. The legislation requires new appraisal disclosure, including:

  • Lenders must inform a consumer of their right to receive a free copy of the subject property’s appraisal report within three business days after they receive a consumer’s mortgage application.
  • Lenders must provide consumers with free copies of all appraisals completed in connection with an application for a first mortgage.

The new rule will only apply to first mortgages and not home equity lines or loans.

HA: What changes, if any, should agents be aware of when it comes to mortgages next year?

DK: The one change that has gotten a lot of attention is the Debt to Ratio income ratio on Conventional loans being lowered to 43 percent.  This caused a lot of concern but in reality, it is not a major change, since the max debt to income ratio is currently 45 percent.  Also this is just for Conventional loans not FHA or VA loans, which allow a higher debt to income ratio.  Now if rates continue to increase then that would lower the amount that buyers can get approved for, which could hurt.

SM: The most notable change going into effect is the Qualified Mortgage rule. The Consumer Financial Protection Bureau (CFPB) has issued a rule that takes effect on January 10, 2014, designed to prevent homeowners from taking on mortgages they don’t have the ability to pay back.

The ability to repay (ATR) and qualified mortgages (QM) rule generally require lenders to make a reasonable good faith determination of a consumer’s ability to repay before originating a mortgage loan. ATR will impact applications dated on or after January 10, 2014.

The new rule is meant to bolster the idea that consumers and mortgages professionals must be responsible and realistic about what a homeowner can and cannot afford. While there may be some lenders who will see a noticeable change and will likely be much more careful about the loans they offer, Guaranteed Rate has stayed ahead of the curve and has had the new qualified mortgage rules in place for our customers for some time now.  In fact, over the past 18 months, 99.4 percent of our loans would be considered ATR/QM compliant.

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