The Three Percent Solution

TheMReport — News and strategies for the evolving mortgage marketplace.

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Th e M Rep o RT | 7 take 5 constraints, but also offering additional information and education to ensure that today's homebuyers are in a sound finan- cial position. To that end, we created MyLoanDetail, a proprietary online educational tool for our borrowers. Increasing the transpar- ency and understanding of their loan from Carrington is critical to their financial literacy. MyLoanDetail walks consum- ers through every detail of their loan to help them understand loan terms and responsibilities. It goes beyond the basics of transaction costs, principal amount, term, interest rate, and monthly payment to ad- dress what happens in the case of missed or late payments. This information is tailored to the consumer's specific situation, and Carrington requires all of its customers to complete MyLoanDetail education before funding. We believe that education really is one of the best safeguards lenders can have against distressed loans. By offering simplified loan products and top-quality educational tools, Carrington is doing its part to serve underserved and first-time homebuyers without creating undue risk for the market. M // That being said, there seem to be conflicting views over access to mortgage credit: Some say it may tighten, while others believe it could loosen. In your view, what's really happening out there? Maninang // There has been a lot of investor activity in the market the past several years, and that has made access to mortgage credit tighter than it should be. The average homebuyer cannot com- pete with investors coming in with large amounts of cash, and that really has affect- ed homeownership rates. However, we're starting to see investor activity decline. According to the National Association of Realtors, this past November, investors accounted for 15 percent of existing-home sales, which is below the 19 percent seen in November 2013. In addition, 25 percent of existing-home sales were all-cash transac- tions, which is down from 27 percent in October and 32 percent in November 2013. As these cash investors start to pull back from the market, owner-occupied pur- chases should pick up. And as more typi- cal homebuyers take to the market, they will need access to mortgage credit. That demand—and fewer investors to compete with it—should lead to increased access to credit for the average borrower. M // Still, consumer sentiment toward the housing market seems tepid despite an improved economic outlook and an apparent desire for homeownership. It's not that potential buyers are simply confused about options. They seem to not want to consider any of them. What do you think they're so concerned about? Maninang // Although the market has greatly recovered from the subprime crisis, its effects are still really in play for the typical consumer. They saw the worst-case scenario, and many have been frightened away by it. In addition, the millennial gen- eration—the next big homebuyer segment— has been hampered by low wages, high rents, and student-loan debt. That said, I think there is a lot to be optimistic about. Home values are continuing to appreci- ate. The median existing-home price was $205,300 in November, which represents a 5 percent year-over-year increase, and was the 33rd consecutive month of year-over- year price gains, according to the National Association of Realtors. As home prices stabilize and rents continue to increase, renters will start to see the value in mak- ing the move to homeownership. In addition, first-time homebuyers are starting to come back into the market. In November, they represented 31 percent of all buyers, the highest share since October 2012 and an increase from the 29 percent seen in October. As confidence starts to return to the market and credit becomes more accessible, I think we'll really see buyers shake off their fears and return to homeownership. M // What do you think will be the greatest driver in the housing market this year? Maninang // I think this year will see the return of the average homebuyer. Given recent home price appreciation, we should start to see less investor activity and more move-up buyers using the equity they've built up in their home as a down pay- ment on their next home. This should help ease the tight supply of housing inventory that's appropriate for first-time homebuy- ers. Of course, one thing that could really affect where the market goes this year is mortgage rates. The Mortgage Bankers Association is predicting rates to hit 5 percent by the end of the year, although that same prediction failed to materialize for 2014. If rates do rise significantly, how- ever, that could stall the market, as current homeowners won't want to, or won't be able to, buy up and lose their locked-in low rate. That will hamper supply for first-time buyers, as well as potentially scare them off of making the move to homeownership.

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