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We heard some good news from Fannie! They are increasing their overall forecast for loan originations for 2017 and 2018 by nearly $250 billion. They are now projecting originations during the 4th quarter of 2017 to be about $427 billion. Any increase is good news for lenders.
More good news came from the most current NAHB/Wells Fargo Housing Market Survey which measures builder confidence.
This index was up 4 points to 68 in October, the highest it’s been since May. All three of the components making up this index rose:
- Current sales condition up 5 points to 75
- Sales expectations up 5 points to 78
- Buyer traffic up 1 point to 48
These are all good signs for new construction. Although the index reveals the builder’s higher confidence levels, we still may see some aftershocks resulting from the recent hurricanes.
According to MBA, applications for new homes were down about 7.5% in September mainly due to decreased activity in Florida and Texas.
A separate Fitch Ratings report indicates that despite the increased optimism, some builders still face challenges from their high leverage and debt incurred during the recent housing recovery.
Fitch expects this housing recovery to continue into 2018, continuing to aid builders, although rising land, labor, and material costs, may put some downward pressure on profits. Still, the outlook is good.
Things are looking up and there is a reason to be optimistic. Opportunities will exist if you know where to find them and how to capture them. Then, all you need is to have the products and services needed to meet the needs of the borrowers. Piece of cake, right?
A little fly in the ointment is that with this optimism comes some caution. While everyone is concentrating on new business a report from Standard & Poors and Experian, indicates that mortgage delinquencies may be on the rise.
Lenders have done a great job of originating good quality mortgage loans that have performed well over the past few years. But, recent events may bring an adverse impact on loan performance. Hopefully, this is just a glitch.
This report indicates the default rate for first mortgage loans for September was up 1 basis point. The good news is they are still lower than a year ago. But, they are closer to the levels we saw in 2016. Second-mortgage defaults also increased by 3 basis points. Again, that is still lower than last year.
Although these numbers in and of themselves do not present a major shift in defaults, they present some reason for caution.
With the challenges from home prices, mortgage rates rising, and home inventories down, compounded by the recent hurricanes, defaults may rise and sales may decline. Neither is good for lenders.
Although some forecasts for originations have increased, the number is still nowhere near those of the mortgage heydays from just a few years ago. There will be opportunities but competition for each loan will be tough.
Lenders need to ease some credit standards while providing riskier loan programs. When doing so, they need to be careful not to go too far in their never-ending search for more business.
More opportunity and more business are good. As long as it is quality business that can be sold and will perform in the secondary market. Otherwise, it may prove to be a waste of time, effort, and money. The same time, effort and money that could be spent originating good, quality loans!
Do you have the staff, training, and technology to originate the good quality, compliant loans, while quickly identifying and passing on those a little too risky? Those who do will be the ones to benefit in the upcoming challenging mortgage market.
