Mortgage Originations Ready to Explode

By: Tom Kerr | May 06, 2009

Mortgage originations may soon hit a whopping $3.1 trillion, mostly because of a huge surge in mortgage refinances that are expected to continue to boom. With mortgage rates at all-time lows, millions of savvy American homeowners are taking full advantage of them.

The Mortgage Bankers Association now reports that the Federal Reserve's plan to buy up more than a trillion dollars' worth of mortgage assets from the credit markets is actually working. As mortgage rates plummet to levels that haven't been seen in decades, the number of mortgage originations is soaring. 

With house prices at bargain basement levels, Americans have been anxious to get back into the real estate market. They have, however, been naturally skeptical and cautiously tentative as the economy struggles with a global crisis. But a concerted government effort is starting to pay dividends as mortgage rates are dropping, banks are easing credit restrictions, and lenders are seeing a big spike in mortgage refinancing.

New buyers now have 8,000 new reasons to take the leap, because President Obama has created an emergency tax benefit worth $8,000. The savings are available to so-called new homebuyers, which the IRS defines as those people who haven't owned a home within the past three years. Lots of people are in that category these days, even if they used to own a home before the markets peaked. This special tax break doesn't have to be repaid like some of the other tax incentives proposed last year. As tax season coincides with the arrival of springtime-which is the busiest time of year for real estate sales-motivated buyers are starting to shop with real determination to purchase a house and save some cash.

Mortgage refinance explosion

Meanwhile, the volume of mortgage refinances is also going up significantly, and is now at a level that hasn't been seen in about five years. Millions of American homeowners are in a rush to convert their existing loans into more affordable ones at historically cheap mortgage rates before those rates begin to climb back up again, which will likely be soon.
Mortgage originations create busy underwriters

The increased number of mortgage originations and mortgage refinances has caught many lenders off guard and understaffed. Stringent lender guidelines and regulations are essential in order to avoid another mortgage crisis; but with that kind of oversight comes painstaking underwriting that takes time and is labor intensive. Technological enhancements and upgrades are being implemented at many major lending institutions to help speed up the underwriting process, and mortgage companies are hiring more staff. Bank of America CEO Ken Lewis told reporters that his bank, for example, recently added 5,000 new employees just to handle the renewed activity.  

Officials at Fannie Mae also agree that the mortgage business is robust, and they anticipate that the volume of mortgage refinances will continue to grow as more homeowners find out that they're eligible for attractive loan modifications under President Obama's new Making Home Affordable program.

NY Times says allure grows for Reverse Mortgages

By ELSA BRENNER
NY Times, Published: May 1, 2009

RETIREES everywhere whose savings have shriveled in the credit crisis are turning to reverse mortgages to meet their expenses — and in places like Westchester County, where high property taxes also weigh heavily on their shoulders, such loans have become more popular.

For owners 62 or older faced with bad timing, and perhaps hoping for eventual improvement in their portfolios, it can be sensible to stay put, making use of a reverse mortgage to borrow against the equity in the home tax-free, with no requirement to pay the money back as long as the borrower lives in the home.

Describing many of his clients as “house rich and cash poor,” Mr. Krooks explained that this situation affords Westchester retirees “a much-needed, day-to-day income stream to meet their expenses.”

According to the federal government, the volume of reverse mortgages increased 24 percent in March compared with February , setting a national monthly record of 11,261 reverse-mortgage loans. And as the market for them booms, the profile of those using them is expanding, Mr. Lamoreaux said. “It used to be just the 75-year-old widow,” he added, “but that’s not so anymore.”

Nowadays, the loans are becoming more popular both with recent retirees and the very elderly — though the motivations are very different.

Mr. Lamoreaux cited the example of clients of his in their 60’s “who had lived large when they were younger,” owned a vacation home and had taken out two or more mortgages on their primary residence to finance their children’s education. As a result, they had few resources left to carry them through retirement, especially with their investments depleted.

Another couple he counseled had been looking forward to retirement in the next few years and had planned to sell their home in northern Westchester and move, permanently, to their vacation home in North Carolina. Then, last month, the husband was laid off by his company as part of a cost-cutting measure.

The couple faces a new reality: the value of their home has plummeted from its peak two years ago, and the monthly payments on their seven-year interest-only mortgage are about to go up — just as their income is evaporating. They are candidates for a reverse mortgage to help refinance their debt and buy them time to regroup and consider their options.

Another couple, in their late 80s, recently told him their reason for needing a reverse mortgage: “We’re not supposed to be alive to need money to live now, but here we are.”

to learn more, call me Bill Hendrick at 303-440-6900 or email bhendrick@yourloanteam.com