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Mortgage Originations: The Good, The Bad, And the Ugly in 2014

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16 | Th e M Rep o RT cover story 6.1 percent in six years. And lower unemployment generally equals more employed consum- ers, who are then able to begin playing more heavily in the economy. "Originations improved during the second quarter," Williams said. "May and June are typi- cally the best months for the residential mortgage market because it's the best time for families to move. The kids are out of school, the transition to a new home is easier, and parents are looking for areas with bet- ter school systems. Frankly the weather is much better during the spring and summer months too. For these reasons alone, the second quarter fared much better for us." Still, the pain of Q1 left a last- ing impression on the origina- tions sector. Harsh weather conditions during that first period, continued shock from the implementation of mortgage regulations, and risk-conscious home buyers stifled demand for purchase mortgages. Voss with Mortgage Network said the process became "so heavily compliance-oriented," and the burden of proving ability-to-repay slowed down efforts dramatically in Q1. Voss remembers the processing of each loan feeling as if his staff was in effect processing three or four mortgages when, in reality, it was just taking longer to com- plete one loan. Still, he saw the second quarter as "stronger," but limited by a lack of inventory. "We did get a significant pop," he added encouragingly. Still, the second quarter did little to curve overall expecta- tions of an originations slow- down from 2013 to 2014. The MBA concluded in July that despite an improved second quarter, the trade group expects a 42-percent drop in overall mortgage originations for 2014. Refinance originations, which drove a demand surge in 2012 and 2013, are expected to fall 60 percent this year, while purchase originations could drop as much as 10 percent, according to the MBA. Call it a psychological need for inspiration or something to hang their hats on, but mort- gage origination professionals are still trying to focus on what went right in the second quarter, while hoping the first quarter is simply an outlier period. "Mortgage rates remain low, which is providing potential homebuyers with opportunities for good deals," added Williams with RightStart Mortgage. "Based on second-quarter results, we're finding that low interest rates continue to help the housing market gain traction. Interest rates are at record lows, but they're not going to stay that way forever. Homebuyers realize this, and, for that reason, it will have a positive impact on market flow into the third quarter." Williams believes interest rates will remain below 5 percent, giv- ing consumers enough incentive to jump into the market. "If rates moved higher than 5 percent—up to 6 percent or even 7 percent— they would still be low from a historic standpoint," the origina- tions executive added. Hogle with Supreme Lending said his company is not expect- ing interest rates to move much over the next six months. The MBA also gave the industry's "glass-half-full types" something to look forward to this past summer. The trade group highlighted the fact that existing home sales grew to 4.9 million units in May (as re- ported by the NAR). The MBA also noted that new home sales surged to a 504,000-unit pace in May, up from 425,000 in April, according to Census Bureau data. This increase marked what the MBA calls the "highest pace of new home sales since May 2008." The Q2 turnaround wasn't grand, but it definitely painted a rosier picture when consider- ing overall consumer confi- dence plummeted just months before in the first quarter of 2014. First-quarter gross domestic product contracted by 2.9 percent on lower consumer spending and a steep trade deficit, the MBA explained in a July update. While those facts alone may be perceived as a wet blanket for the housing market, improve- ments in the second quarter at least allowed some room for wishful thinking. The MBA overall anticipates real GDP growth will reach 1.5 percent for 2014. Furthermore, consumer demand seemed to pick up in the second quarter, the trade group added. Some of the recent gains stem from stock market improvements and home equity growth. In fact, many of the homeowners who refinanced during the wave of 2013 started to experience some benefits of having more monthly cash flow, the MBA suggested in its July commentary. Voss notes that refinancing may have declined substantially this year, but it is more in line with historic averages. What concerns him and the rest of the industry is the reluctance of both move-up buyers—those who already have homes and who are looking to upgrade—and first-time buyers. Neither one of these groups is aggressively looking to buy homes and take out mortgages despite fairly low interest rates. In the younger age bracket, this ongoing reluctance is at- tributed to the well-known economic struggles plaguing this group of Americans. "Underemployment is defi- nitely a problem," Voss said. "It is a hidden killer." He added that potential buyers "are not getting the bonus." "They may have a job, but they do not have the same salary." And if they have a home, they are not going to trade-up if they fear the economy is shaky, he explained. They are going to stay in place, and maybe invest in home improvements. For this reason, the demographic of the average buyer is shifting some- what. "Underemployment is definitely a problem," Voss said. "It is a hidden killer." he added that potential buyers "are not getting the bonus." "They may have a job, but they do not have the same salary."

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