This year, due to the recent election and new administration, there will likely be many stories in the Market Update that will be political in nature. We anticipate that the Trump administration will make or attempt to make substantial changes to policies that will impact mortgage lending and the housing market. These proposed changes could be as drastic as those implemented after the financial meltdown in 2008.
Regulation that has been implemented since 2008 have made lending more expensive due to compliance, and certainly more challenging for the consumer to obtain a home loan. The mortgage industry has been kicking and screaming to repeal Dodd-Frank and end the CFPB, all the while, in recent years posting record profits. Banks raised costs to the consumer, and in many cases cut pay to the employees; all in the name of compliance. Geneva Financial, LLC faces similar burdens, yet chose to pay our employees more (loan officers pay at nearly twice the national average), and offering a lower price to the client. How? We chose to be very profitable; but slightly less than most. And, while remaining compliant.
Geneva Financial, LLC is a mortgage banker that is likely going to benefit, at least in the short term, from these proposed changes. If the proposed changes, while vague at this time, come to fruition, there is the potential for great financial gain. The roll back of Dodd-Frank, the restructuring or dismantling of the CFPB, and the repeal of the Affordable Health Care Act would lower our compliance burden, and substantially increase profitability. That does not mean it is in the best interest of the homeowner or our employees long term.
As a mortgage banker, we inherently do not like regulation that makes doing business risky, or costly. But more importantly, we care deeply for the wellbeing of our employees and our customers and will try diligently to take an unbiased approach when reporting in the Market Update.
TRUMP KILLS FHA MIP REDUCTION
Only moments after being sworn in as President of the United States, Trump halts the FHA mortgage insurance premium reduction, set to go into effect January 27th, 2017.
On January 9th, the Obama administration announced that FHA would be reducing the FHA mortgage insurance premiums on all new FHA mortgages originated on or after January 27th. The reduction lowered the MIP from 0.85 to 0.60 for most FHA home loans. Per the Federal Housing Administration, the reduction would have saved homeowners an average of $500 per year (savings would vary based on loan size).
On Friday afternoon, Senate Minority Leader Chuck Schumer said the president is undercutting his inaugural message. During his opening statement on the Senate floor, he asked Trump to reverse the suspension of the rate cut. “What a terrible thing to do to American homeowners,” Schumer said, according to his prepared remarks. “President Trump, with the flick of a pen, ended that new policy, making it harder for Americans of modest means to obtain their piece of the rock, the American dream — home ownership.” (cnn.com)
FHA is required to maintain a minimum capital ratio of 2.00%. At the time of the MIP reduction announcement, the capital ratio was at 2.32%.
GOODBYE CONSUMER PROTECTION
Now officially in office, President Trump sets his sights on dismantling Dodd-Frank.
Speaking before the Congressional Republican Retreat, Vice President Mike Pence said that dismantling Dodd-Frank and its “overbearing mandates” remains a top priority for the Trump administration, a statement that was greeted by applause from the collected Republicans.
Last year, Hensarling introduced the Financial Choice Act, a Republican-crafted Dodd-Frank replacement that would “end taxpayer-funded bailouts of large financial institutions; relieve banks that elect to be strongly capitalized from ‘growth-strangling regulation’ that slows the economy and harms consumers; and impose tougher penalties on those who commit fraud as well as greater accountability on Washington regulators.”
“No bureaucrat in Washington should be able to tell hardworking Americans what kind of credit card, bank account, mortgage or retirement advice they can have, but that’s exactly what Dodd-Frank does,” Hensarling said.
“As the president and vice president have said, Dodd-Frank makes it harder for people to get loans to buy a home or start a small business. Consumers are paying more in fees and are losing benefits and access to services they want and need,” Hensarling continued. “Instead of ending ‘too big to fail,’ Dodd-Frank institutionalizes bailouts for big banks. Dodd-Frank’s regulations give Wall Street a competitive advantage over community banks and credit unions,” Hensarling added. Hensarling said that he plans to “dismantle” Dodd-Frank this year.
“Republicans on the Financial Services Committee are eager to work with the president and his administration to unclog the arteries of our financial system so the lifeblood of capital can flow more freely and create jobs,” Hensarling continued.
“The Financial CHOICE Act, our bold and forward-looking plan, replaces Dodd-Frank with new policies to protect consumers by holding Wall Street and Washington accountable, end bailouts and unleash America’s economic potential,” he concluded. “Replacing the Dodd-Frank mistake is necessary if we ever hope to enjoy a healthy economy and make America great again.” (housingwire.com)
Dodd-Frank undoubtedly has created a financial burden to Wall Street and the mortgage industry. It has been estimated that the cost to implement the regulation and stay compliant to the vast and often unclear rules, have increased the expense to the consumer by as much as 40% to obtain a home loan. At the same time, Dodd-Frank has all but eliminated predatory lending and is now keeping the industry honest; well mostly.
Dodd-Frank created protection to the consumer at a big price. The question will be whether that price is worth it, and whether the dismantling of Dodd-Frank will be replaced by regulation that falls somewhere in the middle. The pendulum swings once again and this time we may see regulation that has more interests protecting Wall Street than the borrower. Will “buyer beware” economics prove to free up lending and expand homeownership? At least your mortgage will be less expensive; that is until they privatize Fannie and Freddie (next story).
HOME PRICES CONTINUE TO RISE
The latest reports from CoreLogic show home prices jumped 7.1% in November compared to last year. The rise in home prices is largely due to the lack of inventory in many markets.
“Home prices continue to march higher, with home prices in 27 states above their pre-crisis peak levels,” said Anand Nallathambi, president and CEO of CoreLogic. “Nationally, the CoreLogic Home Price Index remains 4% below its April 2006 peak, but should surpass that peak by the end of 2017.” (housingwire.com)
HOME VALUES NEVER BEEN HIGHER
According to a new report from Zillow, the value of housing in the United States has never been higher. Per the report, home values in whole rose to $29.6 trillion in 2016; highest in history.
Zillow’s report shows that housing stock showed an increase of $1.6 trillion from 2015, a 5.7% increase in value to reach that record level. That increase also means that the U.S. housing market has now regained all of the value that was lost during and after the housing crisis. According to the report, the cumulative value of all homes in the U.S. declined by $6.4 trillion from 2006 to 2012 as the housing market collapsed. But now, all of that value has been gained back. (housingwire.com)
While so very early, this is where we are since the election.
- Stock Market breaks 20.000
- Long term mortgage rates jump nearly 1.0%.
- Home affordability reaches an 8-year low.
- FHA MIP reduction halted.
- Administration aims to dismantle Dodd-Frank.
- Administration vows to repeal the Affordable Care Act.
Change is on the way. Going to be an exciting year.
RATE WATCH – FLAT
|3O YEAR FIXED||4.375%||4.5026%|
|15 YEAR FIXED||3.625%||3.7476%|