If I were to ask most Realtors and mortgage lenders this question, I’m sure I’d get some mixed response.
For the most part, I believe I’d hear that in many areas housing is recovering and, although lending is off a little, it seems to be on the rebound (as long as rates stay low).
Would it surprise you to know that home loans from $1 million to $5 million were the fastest growing segment of the jumbo market in January, according to a report from the MBA (Jumbo Loan). It looks like the market is heating up at the upper end, and some realtors, banks, and lenders are taking advantage of the opportunities. Are you?
Although many first-time homebuyers may be struggling to find loans to buy a home, those at the higher end are doing quite well. Many large banks are providing mega financing to those of wealth to purchase larger more expensive homes in luxury markets. It’s not that they’re giving these loans away at a discount but these qualified buyers can afford a larger down payment and, without the costs of MI and agency G fees, the rates are quite attractive.
Another example of an unintended consequence of government intervention (Dodd-Frank) is that the new QM/ATR rules left lenders with too much uncertainty and angst. The result is lending tightened and those at the lower end were squeezed out of the market.
On the other end those who are well qualified, with the financial wherewithal to afford a large down payment and easily demonstrate the ability to repay, have better opportunities to obtain home financing at reasonable rates. They have become the prime borrowers and are courted by banks. With money to lend and the need for increased investment returns, these banks are ready willing and able to satisfy their needs.
As is usually the case, there are 2 sides to every story. With those on the lower end struggling to find financing, there are those at the higher end finding it easily and at attractive rates (those in the middle are doing okay for now). This is not necessarily a bad thing.
Banks have these investment vehicles now and they can attract high-quality customers to offer other wealth management products and services. In addition to the income from the mortgages, this brings in additional capital and income, allowing the banks to expand lending into lesser markets to qualified borrowers. This provides more capital for other consumer lending, including home financing. This further aids in a full economic recovery.
Lenders should pay close attention. In a push to find ways to provide home financing to more consumers at the lower end of the spectrum, we may hinder the financing options to those at the upper end, affecting the balance of lending and financing opportunities throughout.
Seems to me there should be enough money to go around. What we need are sound lending practices, producing quality loans throughout the lending spectrum, with viable opportunities for investments, backed by the loans created. This can happen once quality returns to the process, at all levels; lending, packaging, securitizing and servicing. This can, and should, be done by the industry without the need for more government intervention.