US mortgage market outlook – Proposed changes in mortgage investment market 2016

Though home prices keep climbing, yet homes remain affordable throughout the US. What may be the reason behind this? Well, the present mortgage rates are tempering the rising home prices. In the last quarter, more than 7 among 10 US homes were deemed as ‘reasonable’ to households which earn the median income of the nation, although assuming that the family took out a 30 year mortgage, made a prudent down payment on the property and also boasted good credit scores. The second quarter of 2016 saw low rates on mortgage loans and rates reached an all-time low level.

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This kept a check on affordability but then it was deduced that affordability of homebuyers was entirely dependent on continuous low rates. Home prices keep rising and then it hit the highest level since the 2nd quarter of 2007. For all those buyers who are looking forward to capitalize on their home buying dollar, the next couple of months might be the best time to do so. At the same time, there have been some changes to the mortgage investment industry which homebuyers should know of. Let’s take a look at some of the proposed changes.

  • Collateral requirements will increase: As per the new rules, private-label issuers of residential mortgage-backed securities as of Dec, 24 will need to collect at least 5% of the mortgage deal unless the loans abide by the criteria for qualified residential mortgage loans.
  • Loan limits will be higher in few counties: There are around 39 expensive counties where FHFA (Federal Housing Finance Agency) will increase the size limits of loan purchase for Freddie Mac and Fannie Mae in 2016. Limits on FHA loans which serve as collateral to Ginni Mae securities will also be increased in around 188 counties.
  • Availability of new hedging instruments: On January 11th, CME Group’s Ultra 10 year Treasury note will debut. The head of the group of interest rate products, Agha Mirza is of the opinion that this product will assist originators in managing risks related to mortgage products.
  • Fannie Mae to collect more data on credit: Fannie Mae in the middle of 2016 will start asking the loan sellers to utilize detailed data on credit, including rate of utilization over time, as against static information on balances and payments. Brad German, a Freddie spokesman said that GSE will also be going through a change.
  • Increased options for small investors: There will be increased options for accredited investors which will help them grow their business. Income and plans to purchase prime-credit non-QM loans can be made to eligible borrowers who are non-agency eligible. They can also get notes which reference mortgages’ pass via cash flows.
  • Increased margin for GSE modifications: This rule has already come into effect since 1st March and as per this change, mortgage servicing companies need to calculate the full obligation of a borrower to determine whether or not he is eligible for a Freddie Mac or a Fannie Mae loan. Can the borrower opt for a loan modification in exchange of the principal balance which was used previously?
  • New process of electronic filing: Under the Uniform Mortgage Data Program, the GSEs will soon start querying the mortgage sellers about submitting closing data electronically by the last quarter of 2016. It has also been noted that this program will most probably become compulsory by the middle of 2017.

So, although this is being deemed to be the market for homebuyers, yet you have to be aware of the changes so that you may make a measured decision while getting a mortgage loan. Stay within your affordability and manage your monthly payments systematically too.

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