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   ARTICLE   |   From Scotsman Guide Residential Edition   |   September 2011

Brighter Days Lie Ahead

For dedicated originators, market improvements should soon pay off

It's been a harrowing few years. We witnessed plummeting home values, extremely low interest rates, record foreclosures, widespread borrower distress and the collapse of numerous financial institutions. At the same time, loan originators have made considerable strides meeting marketplace and regulatory challenges, including higher net-worth requirements and new compensation rules.

It's safe to say not a single loan originator agrees with all the new rules and regulations — which, when combined, have imposed stringent underwriting policies and overlays — and that most believe the net impact will lead to higher costs for consumers. Nonetheless, most quality mortgage shops have adjusted to the new tasks and costs, and the industry at large will continue to voice its opinion about future rulemaking and legal wrangling.

Overall, we can have confidence that many destructive forces have been purged from the lending and financial markets. Other issues — such as a huge inventory of new, used and defaulted homes — will take time to overcome. Ultimately, however, the absorption of that inventory will improve market valuations and bring housing supply and demand back into balance.

As we move through the typical sweet spot of our yearly production cycle, favorable signs point to a stabilization of lending rates, which remain historically attractive. This should draw expanded refinancing business from two groups of homeowners:

  1. Those with stable finances who wish to remodel for enhanced livability
  2. Those who want to improve their home's appeal for a planned sale when values recover

Furthermore, we are witnessing renewed interest and strength in the secondary markets along with product stimulation.

We may never get back to the days of rapid home appreciation and easy financing, but credit-score relief and relaxed criteria are starting to emerge. Looking around, we see lenders penetrating the upper and lower ends of the acceptable credit-score range. With due caution, this is welcome news.

Most Americans would still like to own a home, but we can't underestimate the long-term impact of recent economic events. Today's typical family has less financial leverage, and its home is less likely to be considered a primary investment — even though it probably is. Jobs and personal income remain the drivers of homeownership. The economy isn't buoyant yet, but we can now find signs of improvement.

Industry participants should doeverything they can to make sure the uptick continues. Most important, perhaps, we must guard against attacks on the mortgage-interest tax deduction. This potent homebuying incentive has been a market mainstay and economic driver. Any reduction of this benefit would be detrimental to the mortgage and housing markets as well as to the overall economy.

Going forward, we likely can expect a strong conclusion to this year with volume and profitability increases, expanded lending criteria, new wholesale lenders and mechanisms, and some new mortgage products.

Congressional plans to restructure or replace Freddie Mac and Fannie Mae also deserve close watching. The mortgage industry isn't ready to have the rugs of Freddie and Fannie pulled from beneath us. Not yet, anyway.

But no matter what happens, there always will be room for mortgage brokers and loan originators with outstanding operations, strong industry relationships and a keen sense of consumer needs.

Despite all the changes, one thing hasn't changed — our basic role in the economy. For those who can help clients buy the right home under the right conditions, the future is bright.


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