NAR President Gary Thomas and CEO Dale Stinton moderated the candid discussion during the “Straight from the Top: Insights from Lending Leaders” session at the 2013 Realtors® Conference and Expo,
where the top mortgage industry executives expounded on new regulatory
hurdles that could temporarily restrict lending to some buyers, but will
likely even out over time.
The Qualified Mortgage, or ability-to-repay rule, will become
effective in January 2014 and contains a number of underwriting
standards that will constrict mortgage availability and deny credit to
some first-time homebuyers, said Bill Emerson, CEO of Quicken Loans. The
QM rule requires significant documentation from consumers to justify
lenders’ underwriting decisions; lenders face strict penalties if a loan
is made outside of the specific criteria.
Kevin Watters, CEO of JPMorgan Chase, agreed that lower- and
moderate-income buyers, as well as self-employed buyers who don’t have a
consistent flow of income, might have a tougher time in the new lending
environment. “We need to work together to help first-time buyers into
affordable housing options.”
“It’s important for Realtors® to be educated about the new
documentation requirements so they can work with buyers and meet lender
expectations,” said Matt Vernon, home loan sales executive for Bank of
America.
Mike Heid, president of Wells Fargo Home Mortgage, added that Wells
Fargo is using new technologies to create learning tools to help
consumers prepare to be homeowners, even before they find the house they
love. The new lending standards and documentation requirements are making
some potential borrowers anxious about competing with cash buyers in the
real estate market.
Thomas asked the panelists to share their average
approval timelines.Vernon said that in California, Bank of America’s mortgage loan
officers can process and approve loans in 16 days and always strive to
quickly deliver approvals. He said that the approval process can move
more swiftly when borrowers are educated about lender’s application
requirements.
“Our mission is to get someone approved. With clarity and
transparency, buyers will know exactly what is needed of them. We want
to do this in a manner that is as stress free as possible for consumers
and Realtors®,” said Emerson.
Heid agreed and said, “The way to compete against a cash buyer is to build a process that has no surprises as you go.”
Stinton turned the conversation to the debate over reforming the
secondary mortgage market and asked the lenders whether they fear the
risk of mortgage security “putbacks” and how that impacts underwriting. A
putback occurs when a bank is liable for misrepresenting the
creditworthiness of a borrower to the entity that buys the loan, and the
bank is forced to buy back the mortgage.
Watters said fears over putbacks are real and Heid agreed. “The
putback fear is still there and we’re working to put it to rest,” said
Heid. “The time is right for that. If the government-sponsored
enterprises weren’t in conservatorship, the issue of put backs wouldn’t
be there. We need a world where everything is more of a natural market
and we need competition with Fannie Mae and Freddie Mac. The
conservatorship should end.”
Thomas followed up by asking whether immediate steps should be taken
to reduce the government role in the housing finance market. Emerson
said that the security of their guarantee needs to stay, not the actual
government entities.
“I think if we want the 30-year fixed-rate mortgage, you need the
government guarantee,” said Watters. “The 30-year fixed-rate mortgage
needs the government guarantee because not all banks can soak up the
size of the market.”
When asked whether private investors are ready to take a bigger role
in the secondary mortgage market as the government’s footprint shrinks,
the executives provided varied responses. Heid said that more certainty
is needed before taking action.
“We’ve already started to do some private label securities,” said
Watters. “People are getting back into the marketplace, which is a good
thing. We might not be ready to take it all on, but we are headed in the
right direction.”
The lending leaders unanimously agreed that consumers will see a
healthy increase in the market next year, keeping pace with gains made
in 2013. Mortgage originations will dominate the 2014 housing market as
interest rates creep up and refinancing trends downward.
Heid said that while home values will continue to increase as the
market continues to heal, the economy is the wild card and the downturn
would be a game changer. “In spite of the economic crisis, Americans
still want to be homeowners. That hasn’t changed one bit,” he said.
“Homeownership is at the heart of what we do and that is worth
preserving.”
Source:The National Association of Realtors®