Mortgage Industry Trends

Millennials Finally Getting Off the Fence

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Millennials Keep Calm Get Off the FenceLet’s start with a bit of good news. Recently, the MBA increased its estimates for mortgage originations by $71 billion for 2015, and by $94 billion, to $885 Billion, in 2016.

As my grandfather might have said, “Wow, thatsa a lottsa moola!”  According to Mike Fratantoni, MBA’s Chief Economist, presently there are more home sales being financed, with more loans being approved. Fratantoni says that MBA believes this trend will continue through 2016 and beyond. Oh, happy days.

Is this rebound the result of the Millennials jumping into the housing market? (Millennials)

Not sure, but data from RealtyTrac, an Irvine, CA., real estate research firm, shows that FHA loans are up and this may be due to the recent decrease in the annual FHA premium. As FHA loans require a lower down payment and are usually used more by first-time buyers; the assumption is that Millennials may be using this financing to purchase their homes. This is good news for the housing and mortgage market and helps the economy.

The recently introduced Fannie/Freddie low down payment programs have not yet shown such an impact on home buying. It’s still a little early, so we’ll need to keep an eye on the future effects of these 97% LTV loans. The numbers do show that FHA is outpacing Fannie & Freddie in their share of new financings.

One thing seen as a positive for real estate is that the reduced annual premiums seem to allow buyers to offer more for the home. However, this may result in the consumer ending up paying about the same in their monthly mortgage payment because they would finance a larger amount as a result of a higher purchase price. Good for the Realtor, other owners, and maybe the lender, but is that a real benefit to the buyer?

We walked this tightrope before, creating lending programs and changing criteria to get more people into housing. This is definitely good unless we push it too far. The sad truth is that not everyone should own a home.

Programs can be developed to get more people into homes but don’t necessarily ensure that they stay there. If they don’t, these same programs hurt the markets, the lenders, and the consumers. Hate to be a downer but we need to look at both sides of the equation.

One intention of Dodd-Frank is to make sure of a borrower’s ability to repay. However, at present there is a work around by having a loan qualified as FHA, or Fannie/Freddie approved. So, with the recent program changes making it a little easier for people to buy homes, some lenders may be skirting the real issue of the continued performance of the borrower and their loan. It happened before creating the mortgage lust which resulted in the mortgage bust.

Let’s not do it again. Lenders need to ensure the borrower’s ability to repay their loan and that they can afford to retain and maintain the home purchased. Lenders must manufacture a quality compliant mortgage. Otherwise, we are doomed to repeat the sins of the past.

What’s the biggest benefit of the recent FHA change?

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Let’s stay positive.

Michael Vitali

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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Michael Vitali

About Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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