Predictions for Real Estate in 2013, Part 3, Christmas Eve Edition
Predictions for 2013, Part 3: The Mortgage Industry
This Christmas Eve, we return to our series on predictions for 2013. We’ve predicted new construction’s performance. We’ve predicted trends in housing prices. Today, we look at the mortgage industry and—with the help of expert analysis and perhaps a crystal ball or two—speculate on changes to come in the New Year.
Looking Back at 2012
2012 was the year of the difficult loan process. Many escrows fell through on the basis of lending snafus. Problems came in many forms, but the most common were A) the applicant’s finances, credit, or inability to prove “stable income (a particular problem for freelance contractors and other self-employed individuals); or B) an issue with the appraisal as banks required for the first time their own appraisers, not the local people Realtors® had worked with in the past, but a neutral, and most likely not local, person. Though laudable in the goal to regulate this process, the new system caused problems when an appraiser placed a different value on a home than the one already agreed upon by all parties involved with the negotiation. Steve Kimmey, ZipRealty agent in Baltimore, MD explained this as follows: With the new lending laws, sometimes the appraiser is not local and may be unfamiliar with the area where the property is located…. Your lender, of course, will not move forward with your loan until the low appraisal is satisfied in some way.”
Looking Ahead to 2013
Requirements shouldn’t, and we predict won’t, get more lax in 2013. Unless you apply for an FHA loan, you’ll most likely find traditional lenders will continue to require full documentation of income for at least 2 years, excellent credit, and 20% down. But the industry isn’t done making sure the mistakes of the past—those that contributed so disastrously to real estate’s melt down—don’t happen again. In February 2012, five of the nation's largest banks agreed to set aside $25 billion to rectify past problems and prevent future ones. Covered by this fund, according to US News, are “loan modifications, foreclosure prevention programs, and compensation to homeowners wronged in the robo-signing scandal.”
New Mortgage Rules
With the new year, the Consumer Financial Protection Bureau will design law specifically meant to discourage unethical lending. For the first time, we will have clear language defining “which mortgages can be judged to be beyond a borrower's ability to repay.” Ignoring this language will lead to “legal and financial implications for the lender that wrote the loan.”
As the mortgage industry continues to regain its reputation and its financial footing in this county, we predict (a few) more bumps in the road. Just as 2012 proved difficult as buyers, sellers, and industry professionals struggled with new regulations, so too will 2013 challenge us. But as balance is found between protecting consumers, following guidelines and the incentive to extend mortgages in the first place, the process will ultimately smooth out. After all, the mortgage industry can’t exist without mortgages. Though we may be frustrated in the coming year, the effort will pay off if loans become more secure in general, safer and more predictable for everyone involved.
An Excellent Christmas Present
A stable, ethical mortgage industry will be a gift to the nation’s economy in 2013. With that perhaps artless segue, we leave you for now to get back to your own gifts- shopping, wrapping, or unwrapping. Whatever and however you celebrate, we wish the best of the holiday season!
Photo via CNBC
Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert