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COVER STORY the refinance activity. They are refinancing some of the same borrowers for the third time in the past four years. Credit is still tight and appraisal review is still difficult, but each dip in pricing attracts repeat buyers/borrow- ers. Considering the lack of any real purchase activity and rigid underwriting standards, this ex- tended refinance boom has been critical for many in the industry." Tierce, too, is cautious. "Today the huge numbers are friends," she said. "Originators are busy, and that's great. Every borrower you touch today is a potential referral source tomor- row, so originators should be building their database for future business." Positivity notwithstanding, Tierce warns of trouble looming. that people are accustomed to low 4 percent and sub 4 percent rates," she added. "It will take awhile for buyers to adjust their expectations in a rising rate environment. Once upon a time, a rate below 5 percent was a score. Today, that same program would be a disappointment. The natural order is for rates to in- crease as the economy improves. When that happens, we will see a slowdown in the purchase market as buyers adjust their rate expectations." Pritchard offered similar "My immediate concern is concerns. "We, of course, cannot predict the future, but one thing is certain: When interest rates do rise, and they will, and if we have the same purchase money 10-years-final.pdf 1 3/21/12 11:55 AM marketplace that we have today, many lenders will close up shop," he said. "Correspondents/ mortgage-only lenders will suf- fer, as refinance volume will be down dramatically and there will not be enough purchase activity to fill the void—another thinning of the herd. "2012 was originally predicted to be slower than 2011," Tierce added, "and now the same economists who predicted a decline in production have reversed their projections. Both refinance activity and purchase activity has increased across the country. There continues to be a lot of global economic concern, so we don't expect rates to rise anytime soon. I expect the refinance activity to continue to be strong throughout the balance of this year. If the administration creates a HARP 3 program or if lenders ease some requirements, such as eliminate pricing overlays for credit scores, loan to value, or ease some ratio restrictions, many people who have not been able to refinance will be able to come into the market and will be happy to refinance, even if rates are off their lows. There are many people today in the fives, sixes, and sevens who would be delighted to have a refinance opportunity, and the rate does not need to be below 4 percent for them to realize tremendous benefit. So industry and regulatory or governmental changes could keep refinance activity strong for months and months ahead." C M Y CM MY CY CMY K 26 | THE M REPORT