Mortgage Commentary 8/31/09
by Travis BeMent on August 31, 2009
Capacity – Travis BeMent
Orlando, FL 8/31/09 Based on recent events, I felt it was important that everyone know a little more about capacity and how it affects everyone in the mortgage and real estate arenas. Last week, a realtor asked me if it really was taking 45 days to close a loan. I told him that at The Mortgage Firm that was not the case but certainly it was taking longer than it was just a few weeks ago. Many banks, hit hard by staff cuts, are taking that long. While I used the difference as an opportunity, it brings to light a very obvious issue- capacity. Since the real estate and mortgage crisis hit in 2006, we have seen demand for mortgages steadily decrease. That said, there will always be a demand for mortgages and some of that lost demand will return as the economy improves. While the decrease in demand has started to slow, the loss in the supply of mortgages continues to decrease. Scores of lenders are out of business and a number of loan products have disappeared. Hundreds of millions of dollars in capital available to lend on mortgages has also gone away. Add to that, the loss of jobs for thousands of mortgage processors, underwriters, and other support personnel. The industry is at a point now where we may be unable to meet even the basic levels of demand. The recent failures of Colonial Bank and Taylor, Bean & Whitaker have put pressure on everyone who is left. In the space of a few days, the turn times for processing and underwriting doubled and even tripled in some places. The delays, like those we saw in late May and early June of this year, were causing files to take three to even four or more weeks to be completed. What does that mean for borrowers? This could mean potentially higher rates and fees due to lock extensions and lost opportunities for closings on properties. The landscape from here does not look much better as more lenders and more banks will fail in the coming months, further reducing the available supply for borrowers. The turn times required to process and underwrite files may continue to increase and cause additional strain on an already strained real estate and mortgage system as they fight towards recovery. The other big risk is interest rates. The “inflationary pressure” on rates due to a lack of supply could potentially cripple the recovery of our financial system as a whole. In some other news, Congress is working on legislation that will extend the HOME Act of 2009 which provides a one-time tax credit to first time home buyers. The credit is due to expire December 1, 2009. Based on the fact that many analysts believe our economic recovery will begin as a “jobless recovery,” with little to no employment growth in the beginning. Various forms of the legislation working through Congress would extend the benefit to all home purchases, increase the award to $15,000 and possibly even remove the income limitations on the benefit. The goal is to keep home sales moving and stimulate further sales to help avoid foreclosures. Also of note, the Federal Reserve has made over $14 billion in profit on TARP and other bailout loans.
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Mortgage Commentary 8/31/09
by Travis BeMent on August 31, 2009
Capacity – Travis BeMent
Orlando, FL 8/31/09 Based on recent events, I felt it was important that everyone know a little more about capacity and how it affects everyone in the mortgage and real estate arenas. Last week, a realtor asked me if it really was taking 45 days to close a loan. I told him that at The Mortgage Firm that was not the case but certainly it was taking longer than it was just a few weeks ago. Many banks, hit hard by staff cuts, are taking that long. While I used the difference as an opportunity, it brings to light a very obvious issue- capacity. Since the real estate and mortgage crisis hit in 2006, we have seen demand for mortgages steadily decrease. That said, there will always be a demand for mortgages and some of that lost demand will return as the economy improves. While the decrease in demand has started to slow, the loss in the supply of mortgages continues to decrease. Scores of lenders are out of business and a number of loan products have disappeared. Hundreds of millions of dollars in capital available to lend on mortgages has also gone away. Add to that, the loss of jobs for thousands of mortgage processors, underwriters, and other support personnel. The industry is at a point now where we may be unable to meet even the basic levels of demand. The recent failures of Colonial Bank and Taylor, Bean & Whitaker have put pressure on everyone who is left. In the space of a few days, the turn times for processing and underwriting doubled and even tripled in some places. The delays, like those we saw in late May and early June of this year, were causing files to take three to even four or more weeks to be completed. What does that mean for borrowers? This could mean potentially higher rates and fees due to lock extensions and lost opportunities for closings on properties. The landscape from here does not look much better as more lenders and more banks will fail in the coming months, further reducing the available supply for borrowers. The turn times required to process and underwrite files may continue to increase and cause additional strain on an already strained real estate and mortgage system as they fight towards recovery. The other big risk is interest rates. The “inflationary pressure” on rates due to a lack of supply could potentially cripple the recovery of our financial system as a whole. In some other news, Congress is working on legislation that will extend the HOME Act of 2009 which provides a one-time tax credit to first time home buyers. The credit is due to expire December 1, 2009. Based on the fact that many analysts believe our economic recovery will begin as a “jobless recovery,” with little to no employment growth in the beginning. Various forms of the legislation working through Congress would extend the benefit to all home purchases, increase the award to $15,000 and possibly even remove the income limitations on the benefit. The goal is to keep home sales moving and stimulate further sales to help avoid foreclosures. Also of note, the Federal Reserve has made over $14 billion in profit on TARP and other bailout loans.
Tagged as: Capacity, Commentary, Economy, Financial, Loans, Mortgage, Mortgage Finance Real Estate Commentary Orlando Central Florida Capacity News, mortgages, News, Orlando, Real Estate, the mortgage firm, VA