Taking the Bait

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48 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING the latest Fannie mae Sets growth Forecasts for 'Slow' GSe anticipates a slowdown in growth. a weaker-than-expected first quarter has researchers at Fannie Mae amending their forecast for growth in 2014, but they still project acceleration as the year progresses. In its Economic and Housing Outlook for April, Fannie Mae's Economic and Strategic Research Group notes economic activity slowed in Q1 even more than was forecast, partly due to a sharp decline in inventory investment as consumer spending waned. Citing that drop—as well as unusual weather patterns and a "surprising widening" in February's net exports—the group brought its projection for first-quarter economic growth down 0.5 percentage points to 1.5 percent annualized. Even with the adjustment, Fannie's prediction calls for economic growth at 2.7 percent in 2014, a slight increase over last year's 2.6 percent expansion. "The April economic forecast is similar to February and March, where slow growth has been the common denominator, but we expect to see a slight pickup beginning this quarter," explained Doug Duncan, chief economist at Fannie Mae. Supporting that growth forecast are expected improvements in consumer spending, relief from fiscal policy concerns, and strengthening in the housing mar- ket—though expectations for the latter also had to be scaled back, thanks to the year's slow start. "Some but not all of the weakness is likely related to the abnormally severe winter weather and should rebound in coming months," the group said. "However, a significant share of the weakness appears to be related to the sharp decline in housing affordability and could persist for some time." However, Duncan added, "the recent loss of momentum is likely a temporary one." The group expects sales of new, single-family homes to rise 14.8 percent over 2013's total to 494,000, a downward revision from 519,000. The forecast looks worse for exist- ing homes, which are now expected to fall 1 percent to about 5 million. Origination projections have also been brought down, with purchase originations expected to hit $724 billion as refinances drop to $417 billion. Overall, Fannie Mae expects housing to contribute 0.3 percent- age points to this year's economic growth. One-third of Bankers to Only lend Within Qm Banks still skittish on lending to non-QM homebuyers. t he latest version of the Dodd-Frank mortgage regulations has bankers worried about lending, and their fear has already affected who can qualify for mortgage loans. The American Bankers Association (ABA) released the re- sults of its latest annual Real Estate Lending Survey, which clearly show signs of caution among loan officers. According to the ABA, more than 80 percent of bankers surveyed believe that tightened Dodd-Frank rules will restrict credit, thereby narrowing the pool of candidates able to secure mortgages. In January, the Consumer Finance Protection Bureau imple- mented Regulation Z, which prohibits lenders from making a higher-priced mort- gage loan without regard to the con- sumer's ability to pay it back. This change swiftly led lenders to alter who they saw as viable mortgage loan candidates as they fig- ure out how to do business within the confines of tighter controls. "The new mortgage rules are a serious challenge, especially in the near term, for mortgage lending," said Robert Davis, EVP of the American Bankers Association. "The problem will last at least as long as bankers calibrate their compliance systems, and perhaps much longer." According to the ABA, more than a third of bankers surveyed said they would only offer quali- fied mortgages. Another third said they would offer non-qualified mortgages, but only to targeted customers. A full 95 percent of those who say they will offer non-QMs plan to hold the loan as a portfolio investment. Five percent say they would sell the loan to secondary market investors. More than anything, bankers are concerned with the increasing burden of ever-tightening regula- tion and with meeting the cost of compliance, which has yet to be assessed. It should be noted, however, that three-quarters of the organizations surveyed were financial institutions with less than $1 billion in assets. Still, not all news is bad. Despite the worries, the ABA sur- vey shows an uptick in the per- centage of single-family mortgage loans made to first-time homebuy- ers, from 11 to 13, last year. This is the highest percentage since 2007. Also, 30-year fixed-rate mortgages made up half of all mortgages in 2013, and the purchase market increased from 39 to 44 percent of mortgage originations. Also, despite concerns, only 11 percent of institutions surveyed say they are contemplating selling servicing rights due to new regula- tory requirements or capital treat- ment of mortgage servicing rights. "The new mortgage rules are a serious challenge, especially in the near term, for mortgage lending." — Robert Davis, American Bankers Association.

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