2013 saw a significant recovery of the housing and mortgage industry. A process that will continue in 2014 as well, according to the latest forecasts. However, this consolidation of the housing market will be accompanied by certain new rules in the domain of obtaining mortgages as well.
Changes in the Procedure of Providing Mortgage Loans
In 2014, lenders are no longer allowed to approve mortgages if they do not make sure the borrower will be able to repay the loan. This is known as the qualified mortgage rule. (Click link to read more)
This stricter verification and approval process means that lenders will have to check the borrower’s compliance with at least eight different criteria. These criteria include all the major income and expense related aspects of the borrower’s financial situation, including assets, credit scores, income, other debts incurred and also the borrower’s status of employment. In case the lending institution fails to verify all of these criteria and the borrower becomes unable to repay the mortgage, he or she is entitled to file a lawsuit against the lender.
The lending and borrowing system that used to allow borrowers to accumulate debts until they became impossible to handle will also come to an end. Another important change in applicable laws and regulations introduced with the purpose of securing mortgage repayment is that borrowers are not allowed to spend more than 43 % of their monthly income on the mortgage on jumbo loan programs. Conventional, VA, and FHA loans are still using the old model for their debt to income ratio caps.
Changes in Market Variety
The property price increase seen at the beginning of 2013 caused by a serious shortage in supply on the housing market is also about to stop. The construction industry is also recovering rapidly, so we can expect the housing inventory to come back to levels before the real estate bubble burst.
Changes in Mortgage Rates
Experts predict a rise not only in the supply of homes available on the market, but also in mortgage rates. This increase will make mortgages somewhat more expensive, and mortgage refinancing will also become more difficult, but new loans will also be a bit easier to obtain.
Changes in Affordability
More expensive mortgages will result in rising home prices, which will decrease affordability. The expected rise in home prices in 2014 is around 3% – by comparison, home prices rose by 5% in 2013, but there were some hot spots which showed a rise of as high as 20% in prices. Consequently, homeownership rates will also fall, but the decrease will have a definitely positive outcome: there will be much fewer homes in negative equity, that is, much fewer homeowners with underwater mortgages.
The new regulations and the consequent modifications in the structure of the housing market as well as in the mortgage borrowing habits of the public will consolidate mortgage lending conditions and processes as well. Mortgages will become safer and more profitable, creating more opportunities for those interested in safe investments as well.
In 2014, we are in for even more changes, as new regulations are being discussed by lawmakers – and, hopefully, these changes will transform the face of the mortgage market for the better.