The mortgage industry has been subject to several changes over the last few years, and they might be having a bigger impact than you expected.
Over the last year and a half, the financial side of real estate has been twisted and warped by a number of changes in the mortgage market, which led the National Association of Realtors to conduct two nationwide surveys of mortgage originators – the second of which took place this past April. Among the most prevalent changes, as the survey discovered, were higher fees from the Federal Housing Administration and changes to underwriting as required by the ability to repay and qualified mortgage rules.
The survey, as many have a tendency to be, is rather long and data heavy, so in the spirit of succinctness and readability, we’ve boiled down the information into the five most important – and digestible – points in regards to the mortgage industry.
1. Everyone’s Getting on Board – In January, the requirements of the ATR/QM rule went into effect, and in only four months nearly three-fourths of survey respondents say they’ve already “fully adapted.” However, despite the overwhelming acceptance of the rules, almost 50 percent have experience some issues closing a loan as a direct result.
2. Lenders Are Getting Rid of Risk – Non-QM loans, which tend to fall into the hands of riskier borrowers, are becoming things of the past. When asked, over 68 percent of respondents said they no longer offer non-QM loans because of investor requirements, and 52 percent said they no longer offer the loans because of their firm’s policies. Only 5.3 percent admitted to treating non-QM loans as safe harbor, which are defined as eligible for purchase by Fannie or Freddie and meet QM product restrictions – 43 percent debt-to-income ratio (DTI), as well as the associated points and fees cap.
3. Fees Are Ending Loans Before They Begin – The Federal Housing Administration has increased its charges for mortgage insurance steadily over the last four years, and it’s led to several companies reevaluating their lending standards. Respondents said, on average, increases to FHA fees account for the loss of 5.7 percent of originations.
4. Buyers Don’t Like Rate Increases Either – Increases to mortgage insurance rates can not only cause problems for lenders, but also for the people firms are lending to. When asked, 68.4 percent of originators indicated that at least one client had chosen either not to buy or, at least, postpone the process because of increases to mortgage insurance rates. In cases where clients weren’t postponing home purchases, they often instead qualified for a Veteran’s Affairs or Rural Housing Service loan.
5. Mortgage Insurance Matters – When a lender pays for mortgage insurance from the FHA, it means their money is 100 percent guaranteed. While borrowers with stellar credit and low DTI might scoff at mortgage insurance, more and more it’s becoming a “must have” for lenders. Just over 85 percent of respondents agreed having insurance was important to some degree, and 26.3 percent said they would not lend without it. Only 10.5 percent said the insurance was not important when lending to high LTV or low FICO borrowers.