An increase in the number of mortgage applications means that the housing crisis that played such a major role as both a cause—and effect—of the Great Recession continues to fade into the nation’s rearview mirror.
Even rising interest rates have not, as yet, kept many potential homebuyers from considering a home purchase; as an example, mortgage applications increased almost 1.5 percent in the final week in June.
This spring has been a busy one for the housing sector, including the nation’s lenders; statistics indicate that mortgage applications rose to their highest levels since May 2010, according to data from the Mortgage Bankers Association. A strong employment market, along with continuing low borrowing costs, are helping to drive demand for mortgages
Concurrently, the MBA’s Refinance Index dropped 0.4 percent from the previous week, though the seasonally adjusted Purchase Index rose 3 percent during the same period.
However, hovering over all the mortgage activity remains the specter of rising interest rates.
As of the end of June, the average contract interest rate for a 30-year fixed-rate mortgage, with conforming balances of $424,100 or less, increased to 4.2 percent from 4.13 percent.
Interestingly, purchase applications jumped 3 percent at the end of June, and are 6 percent higher compared to a year earlier.
Industry experts say that the resilience of the home buying market is directly tied to the nation’s enduring employment strength; a strong job market results in increased consumer confidence, including that of potential home buyers.
Concurrently, applications for US home mortgages moved up in the first week of July, even as interest rates on 30-year fixed rate mortgages rose to their highest level since May.
July could well turn out to be a critically important month for the housing industry, including the nation’s lending community.
Two significant changes, which have the potential to assist thousands of borrowers qualify for a loan, take effect this month.
All three of the nation’s major credit rating agencies—Equifax, TransUnion and Experian—will be dropping tax liens and civil judgments from many consumers’ profiles and credit reports if that information is not complete; tax liens and civil judgment data must include the person’s name, address and either date of birth or Social Security number. Of the approximate 220 million Americans with a credit profile, about 7 percent have liens or civil judgments against them.
Along with the changes to credit reports, July will also see changes from both Fannie Mae and Freddie Mac; both mortgage giants will be allowing borrowers to have higher levels of debt and still qualify for a home loan.
Both “Fannie” and “Freddie” will be allowing borrowers to have a higher level of debt-to-income ratio limit, raising it to 50 percent of pretax income—from the current 45 percent level. However, there is a potential downside to that change: consumers could end up carrying more debt than in the past, thereby increasing the risk of default. Mortgage officials are hoping that the risk for that occurring is low, and this change will benefit both the industry and potential homebuyers.
Fannie Mae’s chief economist, Doug Duncan, explained that “given how pristine credit has been post-crisis, we don’t feel that (the change by Freddie and Fannie) is an unreasonable risk to take.” He added that it was important to remember that a consumer’s debt level is “just one of many factors” lenders consider when underwriting a mortgage.”
However, it’s worth remembering that whatever the level of risk involved with these changes by Fannie and Freddie, both mortgage giants are still under government conservatorship—meaning any losses by either would be incurred by US taxpayers.
The current calendar year is already half over. And while there are reasons for optimism, given all the variables involved, the final verdict on the success—or lack thereof—within the mortgage sector likely wont become apparent until the arrival of the Christmas season.
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