(Dennis Martin: I am submitting this analysis by Jimmy Kinley. He has been my loan officer for many years. He always hits the nail on the head and is a straight shooter. I really like how optimistic he is in spite of possible higher mortgage interest rates in 2014)
By Jimmy Kinley
Qualified Residential Mortages Act
Let’s start with QRM. Qualified Residential Mortgages have been the topic of much speculation from many mortgage professionals for over a month. Back in 2008 Congress passed the Dodd-Frank Act and QRM. The big impact was that buyers must show the ability to repay a loan. No longer would having 2 million in your brokerage account take the place of taxable income.
Congress said no matter the amount of assets you have, you must have taxable income that qualifies you to pay your bills. This has had a huge impact of self employed buyers and people who didn’t declare as much income on their tax returns as they may be taking home. “I think that was the governments plan. Get them to pay more taxes by requiring it if they want to buy a home”.
Many professionals have speculated for months that the 2014 changes to QRM would lower the allowable debt ratios for the average buyer and make it even harder to qualify for the bigger home. Although the government did implement a lower debt ratio requirement for some loans, they excluded government loans such as conventional, FHA, and VA. It really only applies to Jumbo loan or non-government back loans. Therefore, there really is no change to the mainstream deal and the changes to Jumbo loans just line up with the guidelines the investors were already using.
Another update to the QRM is the fee restrictions. Lenders are now prohibited from charging more than 3% in lender fees. Really? Who is charging more that 3% in lender fees anyway. On the average size mortgage loan, say $275,000, that would be an absorbent amount of fees. Lenders have implemented higher percentages for small loans such as a 40K condo loan. That’s just a necesarry cost of doing that business. This new requirement really doesn’t affect buyers in the real world.
Other updates to QRM have to do with appraisals, verify liabilities, and verifying credit history. These are things that any lender “worth their salt” implemented years ago and have already been doing for years. Bottom line on the over-hyped QRM is that it really changes very little and will likely not impact the average consumer at all.
Denver Mortgage Loan Interest Rates Forecast
This is not as good of news as the QRM. We all know that rates have been ridiculously low for way too long. Although we want them to stay, I think we all know they can’t stay this low forever. The average for the 30 year fixed since officially recorded is still floating at about 8%. Yep, it’s double. Back in October of 1981 the average rate for a 30year fixed mortgage was 18.45% and buyers where paying on average 2.3% in points to get that. That means that without the points buyers where literally paying 20% for a 30yr mortgage.
We wouldn’t take that rate on a credit card, much less a mortgage. The real story is that we have been getting spoiled since 2009 when the rates fell below 5% for the 1st time since the 60’s. Back in June of 2013 the government announced it would start to end its program that has been purchasing long term mortgage securities. This program was artificially pushing down rates that where already at an all time low.
Once the treasury announced they were going to “phase out” the program we saw an immediate sell off in mortgage backed securities. This caused the national average for a 30 year fixed mortgage to jump one half of a percent in a week. June 20, 2013 the national average was 3.93% and it landed at 4.46% on June 27th. Wow!!! This was the single biggest jump in a week in the official history of a 30 year mortgage.
The fact that the government is slowly phasing this program out over the next year will mean that we will likely see a consistent and slow increase in rates all year long. This is assuming that there are no other variables that speed up the process. Typically, positive economic news will spark the stock market and have a negative effect on interest rates by pushing them higher.
The economic outlook is much better for 2014 than recent years. This combined with many other variables will likely push rates a good bit higher in 2014. Clearly, I have no crystal ball for this and nobody can truly predict it. All I know is that I would not hesitate to buy sooner rather than later if I were even remotely thinking about buying a first home, bigger home, or even downsizing.
I have said this before and I will likely repeat it many times in the future…”There will likely be no better time than right now to buy”. This may ring true for a long time with rates and home prices on the rise. Happy New year and hang on for 2014. The market is prepped to be even hotter than 2013!!
Contact me if you have any questions. I’d love to hear from you.
Senior Mortgage Advisor
License# MB100020560, NMLS 287498