The mortgage market is doing great. Given that big problems which were supposed to make real estate financing enormously difficult in 2016 this is a truly surprising result, a result which should be very reassuring to mortgage borrowers.
Go back to last year when there were a number of huge issues looming on the horizon that seemed likely to slow the real estate market nationwide. That didn’t happen and the result is that borrowers are now able to finance and refinance with far greater ease than might’ve been expected.
The Federal Reserve had been threatening for much of the 2015 to raise bank rates, something it finally did in December. While the Fed does not directly set mortgage rates, the view of many was that when the Fed ultimately got around to increasing interest levels for banks, mortgage rates would naturally follow. In fact, what actually happened is totally the reverse.
Just before the Fed raised interest levels in December, mortgage rates for 30-year, fixed-rate mortgages stood at 3.97 percent, a rate that fell to 3.57 percent by early May, according to Freddie Mac.
This is not just good news for mortgage borrowers, it’s also good news for home sellers with property to sell – lower mortgage rates improve affordability and make real estate easier to sell.
In early October last year, the government introduced the TILA-RESPA Integrated Disclosure rule (TRID), a remarkably complex set of regulations that ran almost 1,900 pages. To the public, these were the Know Before You Owe rules, but for lenders there were worries that the revised standards would increase liabilities, delay closings, and push down loan profits.
Such predictions were partially right – the time needed to close a mortgage increased by several days. However, the government’s decision to delay enforcement of the rules also postponed the liability issue while at the same time it gave lenders more opportunity to learn new systems and forms. One result is that closing schedules have actually improved: according to Ellie Mae, it took 46 days to close a loan in October but only 44 days in March of this year.
Since mortgage rates were expected to increase, there were worries that loan volume – and profits – would decline. Also, the new TRID regulations raised profit issues because it required a lot of time and cash for training and to upgrade systems.
What actually happened was a pleasant surprise: profits per loan went from $747 in 2014 to $1,189 in 2015, according to the Mortgage Bankers Association (MBA). Equifax reported that mortgage originations increased by nearly 32 percent in 2015.
It turns out that many of the worries expected by lenders toward the end of 2015 did not play out. That’s certainly good news for borrowers, but next we have the question of what will happen in the remainder of 2016.
While the government has postponed enforcement of the TRID regulations, there will come a point when the postponement will end. That’s a serious concern because it can expose lenders to fines of as much as $1 million per day.
Rising interest rates don’t seem to be a worry, just look at the generally falling interest rates. However, there could be political or financial issues which change the interest picture and move rates higher in a short period. While “higher” rates might mean loan costs in the 4 percent range, that’s a relative problem – 4 percent rates are higher than today but not too far from historic lows.
As to settlement times, there’s no reason to believe that the averages cannot fall below 40 days – that actually happened in February 2015 and could happen again as lenders gain more experience with the TRID systems.