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Prices are low! Mortgages cheap! But you can't get one

April 6th, 2011 2:58 PM by Dana Bain

Prices are low! Mortgages cheap! But you can't get one

http://money.cnn.com/2011/04/06/real_estate/why_you_cant_get_a_mortgage/index.htm

By Les Christie, staff writer



NEW YORK (CNNMoney) -- Yep, mortgage interest rates are low, but there's a catch: It doesn't matter how cheap rates are if you can't get a loan.

And these days, only highly qualified borrowers can get financing -- let alone the best rates.

Nearly a quarter of people who apply for loans are turned down, according to the Federal Reserve.

"Good borrowers with one or two blemishes on their credit are being denied credit," said Lawrence Yun, chief economist for the National Association of Realtors.

The denial rates tell only half the story. Many potential buyers aren't even applying for loans because they assume they can't get one.

"A lot of people know it's very difficult to get a mortgage and they're not even trying," said Alan Rosenbaum, CEO of GuardHill Financial, a New York-based mortgage broker.

Who's buying homes? The rich

That shows up in credit scores for loans financed with backing from Fannie Mae and Freddie Mac. The average credit score has risen to 760 from 720 a few years ago. For FHA loans, the average score has gone to 700 from 660. Loans made to borrowers with sub-620 scores are almost nonexistent.

Another factor keeping people out of the mortgage market is that lenders now require much more up-front cash. The median down payment for purchase is about 15%. During the housing boom, it approached zero.

On most loans, banks want 20% down. On $200,000 purchases, that's $40,000, an insurmountable obstacle for many young house hunters. Or, in New York City, where the median home price is $800,000, buyers need $160,000 up front.

Industry insiders say all these factors have reduced the pool of buyers, lowering demand for homes and hurting prices.

"We feel it really reduces the demand for houses," said Mike D'Alonzo, president of the National Association of Mortgage Brokers. "It's an unbelievable buyer's market, but there hasn't been as much activity as you would expect because not as many people qualify for loans."

PHOTOS: Homes the rich are buying

Jerry Howard, CEO of the National Association of Home Builders said, "You only have to look at the recent sales reports to see what the impact of the credit crunch has had. The statistics speak for themselves."

Sales of existing homes in February, despite very affordable prices, were 30% off their peak, and home prices fell for the sixth consecutive month in January.

Anthony Sanders, director of Real Estate Entrepreneurship at George Mason University, speculates the tougher credit standards may have stripped as much as 30% of the buyers off the market, compared with normal times.

And it's about to get harder for buyers. Federal regulators proposed rules last week that are designed to discourage risky lending but that will also likely further restrict lending. **

Banks would be required to keep 5% of some loans, specifically those with less than 20% down payments, on their books rather than selling them all off as securities. As a result, banks make be unlikely to issue loans where less than 20% is put down. So much for first-time buyers.

"We think the new rules are appalling," said the NAHB's Howard. "Only the wealthy will be able to buy homes at low interest cost."

It could also further erode consumer demand for homes.

"It's disturbing," said Lennox Scott, head of John LA. Scott Real estate in the Pacific Northwest. "We're just starting to feel healthier in inventory levels and prices and this is a potential headwind."

The immediate impact, should the new regulations get adopted, should be minor, according to Steve O'Connor, spokesman for the Mortgage Bankers Association. That's because Fannie, Freddie and FHA loans are all exempt from the requirements and they represent more than 90% of the market right now.

The government, however, wants to reduce the presence of all three agencies in favor of private lenders, and banking experts fears the long-term impact of abandoning the field to mostly private companies.

"For the first time in 100 years," said Howard, "the government is discouraging you. It's saying 'We intend to make it more difficult for you and your kids to buy homes.'" To top of page

New Loan Officer Compensation Rules Active Today as Appellate Court Dissolves Stay

http://www.totalmortgage.com/blog/mortgage-rates/new-loan-officer-compensation-rules-active-today-as-appellate-court-dissolves-stay/11413

 April 6, 2011

For the past several months, pending changes to loan officer compensation have been one of the hottest topics in the real estate industry. The much-maligned changes, which are intended to prevent loan officers from “steering” borrowers into loans that are not in their best interest were allowed to proceed by the courts today.

Two industry groups, the National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals (NAIHP) filed motions for a temporary restraining order against the Federal Reserve to prevent the rule from taking effect. Initially the motion was denied, but an emergency stay was granted on appeal. Yesterday the stay was dissolved by the Appellate Court. The court ruled that the industry groups did “not satisfy the stringent standards required for a stay pending appeal.” (Edit: originally I thought this matter involved a hearing, but a helpful reader with more legal acumen than I pointed out that there was no oral hearing – my mistake.)

Critics of the changes contend that the new rules will decrease competition in the mortgage sector, increase consolidation, and raise the cost of financing for borrowers. Additionally, many felt that the rules favored large banks over small originators. Members of the House Financial Services Committee as well as some Senators urged the Federal Reserve to wait to promulgate the rule.

Changes to loan officer compensation (which were originally scheduled for April 1st) will take effect this morning. If you’re in the mortgage industry, I’d like to know what you think about the changes. Let me know in the comments section below.

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House Passes Resolution to Dictate Mortgage Loan Officer Pay, Compliance

by AUSTIN KILGORE originally posted article Friday,June11th,2010,11:21am

www.housingwire.com/2010/06/11/house-passes-resolution-to-dictate-mortgage-loan-officer-pay-compliance

A House Resolution (HR), passed on Capitol Hill (pictured above), added a series of provisions to the Senate's Wall Street Reform and Consumer Protection Act, including guidelines that dictate origination fees policy and holds individual loan officers accountable for compliance with the new law. The legislation is also creating concern in the industry about potential negative, unintended consequences its passage may bring.

According to a release from the House Financial Services Committee, HR 4173 dictates that mortgage compensation can only be financed if all originator compensation is paid by the borrower and not third parties.

The borrower also has to pay the entire fee by financing it. The resolution also permits "compensation through rate" for all mortgages as long as they meet the borrower fee financing provision. Previously, the House version of the legislation only allowed this for so-called "qualified mortgages," those loans that conform to guidelines for purchase by federal agencies and the government-sponsored enterprises (GSEs), while the Senate version applied to all mortgages.

Mortgage bankers are closely monitoring the ever-changing financial reform legislation, Scott Norman, president of Texas Mortgage Bankers Association (TMBA) told HousingWire. "We have a lot of members that are very concerned, and loan officer compensation is at the top of our list," he said.

Norman said he personally, and the TMBA, are advocates of transparency and making sure borrowers not only get a fair deal, but understand the terms of their mortgage. But, he warned that restricting yield spread premiums (YSPs) and limiting how much a loan officer can make would impact lenders' ability to attract and retain qualified loan officers on their staffs.

The passage of HR 4173 comes as the House and Senate continue the reconciliation process of each body's financial reform legislation before it is sent to President Obama for signature. The compensation rules brings both versions in-line with each other, ensuring it will be included in the final version of the legislation.

Another component of the resolution makes mortgage originators, including individual mortgage brokers and loan officers, subject to damages for violations of the legislation. If the broker or loan officer violates the compensation restrictions, isn't properly registered, or violates regulations prohibiting conflicts of interest (so-called "anti-steering" guidelines), individuals can be fined up to three times their originator compensation.

Norman said holding individual officers accountable will "absolutely, positively" add another layer of compliance, legal issues and cost to the mortgage origination process, because as he put it: " No mortgage lender, of any size, is going to let a loan officer bring down the entire company."

But that added cost could eventually price small lenders and mortgage brokers out of the business.

"These are all great ideas, and I applaud Congress for trying to make amends, but trying to do too much too soon, without letting the smoke clear, you start worrying about the unintended consequences," Norman said. "If you start adding more and more regulation, whatever you think you save the borrower, they're going to pay it back in higher interest rates and higher legal fees."

These new rules, if signed into law, would open the door for originators to expend capital and time re-training employees, as loan officers continue to navigate new policies implemented by changes to the Real Estate Settlement Procedures Act (RESPA). The resolution's passage comes as the House passes separate legislation to reform the Federal Housing Administration (FHA).

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Posted by Dana Bain on April 6th, 2011 2:58 PM

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