After weathering a tough 2014 marred by a sluggish housing market, lenders see a brighter picture ahead in 2015, with many industry observers describing themselves as cautiously optimistic about the coming year.
Though overall home sales have dipped slightly this year – the most recent data provided by The Warren Group, publisher of The Commercial Record, show single-family home sales down 0.6 percent through October in the Nutmeg State – brighter economic news both locally and nationally have lifted lenders’ spirits in recent months, with gas prices and interest rates down and job growth up.
That sentiment matches other expert’s estimates: In a recent forecast, the Mortgage Bankers Association predicts origination volume will rise 7 percent in 2015, to $1.19 trillion. However, a strengthening economy might not be all good news; in recent speeches the Federal Reserve Bank has dropped more than a few hints that it’s preparing to raise interest rates this spring on the basis of renewed strength in the U.S. economy.
After years of low rates – including some weeks of sub-4 percent rates – lenders seem sanguine about the prospect of rates inching back up.
“Higher rates later in the year could move some people off the fence” into purchasing a home, said Brian Koss, executive vice president of the Mortgage Network.
Safe Enough?
Higher interest rates in the second half of the year aren’t the only potential obstacle for lenders in 2015. At the state level, while consumer complaints against lenders are down in Connecticut, there have been so many new rules put in place in recent years that even diligent lenders who are trying to stay in compliance may fall afoul of the “tricks and traps” in the rules, said Norm Roos, a partner at Robinson+Cole and counsel to the Connecticut Mortgage Bankers Association. “It may be time to shift the focus in terms of recognizing that there may be enough safeguards in place,” he said.
One area of particular concern is the state’s foreclosure procedures. Connecticut is a judicial foreclosure state, meaning all foreclosures must be brought to court and overseen by a judge; in addition, it has a mandatory mediation process in which lenders and borrowers must participate before the foreclosure case can proceed.
Though there have been some reforms to the mediation procedure in recent years, Connecticut ranks third among all states in terms of the length of time it takes to complete a foreclosure, with some cases taking years to be brought to a close. Those lengthy timelines mean that distressed sales still make up a fair chunk of the market in Connecticut, even as other states are well into the recovery from the housing crash.
“It takes an inordinate amount of time to move foreclosures through the system in Connecticut. We’re going to be looking at ways of perhaps unencumbering the foreclosure process in Connecticut,” in 2015, said Roos.
New Forms, New Regs
On the federal side, one more major change mandated by Dodd-Frank still looms: In August, new government forms disclosing a loan’s terms and costs, both at the initial application and estimate and during the closing, will be required. The new docs attempt to meet in two forms the legal requirements and disclosures required by the Real Estate Settlement Procedures Act (RESPA) and the Truth In Lending Act (TILA).
The Consumer Financial Protection Bureau (CFPB) has gone through an extensive testing process and believes it’s come up with documents that are easier for consumers to understand. But what worries lenders is the effect the new requirements will have on closing timelines: In an effort to make sure consumers aren’t blindsided by unexpected charges or changes to a loan’s terms at the closing table, the new rules require that consumers be given the info documenting the loan’s final terms and costs three business days before the closing itself.
For an industry that had long been used to making tweaks to the loan documents up to the day of the closing, in order to respond to changes in the interest rate environment or investor’s overlays, adjusting to locking down all such details several days in advance will be a challenge – even more so given that if it is necessary to make a last-minute change to the loan’s terms, new forms will have to be issued and the closing delayed in order to give consumers the mandated grace period to review the documents. Several lenders expressed concern that while they’re already gearing up to adapt, their partners in the transaction, including real estate agents and attorneys, may not yet be up to speed on what changes will mean.
“Particularly in New England, where attorneys handle a lot of the closing procedure, it’s a big shift,” said Jeremy Potter, head of compliance at Norcom Mortgage. “The expectations amount of the time the transaction takes, there’s a lot of nervousness around that.” A last-minute shift in the closing date may simply be impossible to arrange in the way people are used to, he said.
Any changes which could put a damper on purchase volume could have a dire impact on the industry’s fortunes in the coming year. All of the increase in 2015 origination volumes projected by the MBA is down to increasing strength in on the purchase side, with the trade group forecasting purchase volume will rise to $731 billion from an estimated $635 billion in 2014. It predicts refinances will continue their downward trajectory, dipping further to $457 billion from $471 billion in 2014. In contrast, in 2013 refis made up about $1.08 trillion in volume.
The regulatory landscape in Connecticut will also be adjusting to some changes at the top next year, with longtime banking commissioner Harold Pitkin announcing his retirement, while Connecticut Housing Finance Authority executive director Eric Chatman also recently announced his resignation. The recently re-elected administration of Dannel Malloy, however, has made housing development, particularly low income housing, one of his key priorities throughout his tenure.
Email: csullivan@thewarrengroup.com
