Top Lenders Forecast Housing Market Gains Despite New Ability-to-Repay Rules
SAN FRANCISCO (November 10, 2013) – In a rare gathering of CEOs
and senior executives from the biggest names in mortgage lending, Realtors®
were told to expect market growth in 2014 and to prepare their buyers for
transactions with heavy documentation requirements.
NAR President Gary Thomas and CEO Dale Stinton moderated the
candid discussion today during the “Straight from the Top: Insights from
Lending Leaders” session at the 2013 Realtors® Conference and Expo, where
the top mortgage industry executives expounded on new regulatory hurdles that
could temporarily restrict lending to some buyers, but will likely even out
The Qualified Mortgage, or ability-to-repay rule, will become
effective in January 2014 and contains a number of underwriting standards that
will constrict mortgage availability and deny credit to some first-time
homebuyers, said Bill Emerson, CEO of Quicken Loans. The QM rule requires
significant documentation from consumers to justify lenders’ underwriting
decisions; lenders face strict penalties if a loan is made outside of the
Kevin Watters, CEO of JPMorgan Chase, agreed that lower- and
moderate-income buyers, as well as self-employed buyers who don’t have a
consistent flow of income, might have a tougher time in the new lending
environment. “We need to work together to help first-time buyers into
affordable housing options.”
“It’s important for Realtors® to be educated about the new
documentation requirements so they can work with buyers and meet lender expectations,”
said Matt Vernon, home loan sales executive for Bank of America.
Mike Heid, president of Wells Fargo Home Mortgage, added that
Wells Fargo is using new technologies to create learning tools to help
consumers prepare to be homeowners, even before they find the house they love.
The new lending standards and documentation requirements are
making some potential borrowers anxious about competing with cash buyers in the
real estate market. Thomas asked the panelists to share their average approval
Vernon said that in California, Bank of America’s mortgage loan
officers can process and approve loans in 16 days and always strive to quickly
deliver approvals. He said that the approval process can move more swiftly when
borrowers are educated about lender’s application requirements.
“Our mission is to get someone approved. With clarity and
transparency, buyers will know exactly what is needed of them. We want to do
this in a manner that is as stress free as possible for consumers and
Realtors®,” said Emerson.
Heid agreed and said, “The way to compete against a cash
buyer is to build a process that has no surprises as you go.”
Stinton turned the conversation to the debate over reforming the
secondary mortgage market and asked the lenders whether they fear the risk of
mortgage security “putbacks” and how that impacts underwriting. A
putback occurs when a bank is liable for misrepresenting the creditworthiness
of a borrower to the entity that buys the loan, and the bank is forced to buy
back the mortgage.
Watters said fears over putbacks are real and Heid agreed.
“The putback fear is still there and we’re working to put it to
rest,” said Heid. “The time is right for that. If the
government-sponsored enterprises weren’t in conservatorship, the issue of put
backs wouldn’t be there. We need a world where everything is more of a natural
market and we need competition with Fannie Mae and Freddie Mac. The
conservatorship should end.”
Thomas followed up by asking whether immediate steps should be
taken to reduce the government role in the housing finance market. Emerson said
that the security of their guarantee needs to stay, not the actual government
“I think if we want the 30-year fixed-rate mortgage, you need
the government guarantee,” said Watters. “The 30-year fixed-rate
mortgage needs the government guarantee because not all banks can soak up the
size of the market.”
When asked whether private investors are ready to take a bigger
role in the secondary mortgage market as the government’s footprint shrinks,
the executives provided varied responses. Heid said that more certainty is
needed before taking action.
“We’ve already started to do some private label
securities,” said Watters. “People are getting back into the
marketplace, which is a good thing. We might not be ready to take it all on,
but we are headed in the right direction.”
The lending leaders unanimously agreed that consumers will see a
healthy increase in the market next year, keeping pace with gains made in 2013.
Mortgage originations will dominate the 2014 housing market as interest rates
creep up and refinancing trends downward.
Heid said that while home values will continue to increase as the
market continues to heal, the economy is the wild card and the downturn would
be a game changer. “In spite of the economic crisis, Americans still want
to be homeowners. That hasn’t changed one bit,” he said.
“Homeownership is at the heart of what we do and that is worth preserving.”