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  • The Future Of The Salt Lake Housing Market 2013

    Where will Salt Lake’s housing market go?

    After enduring four years of extreme volatility, the housing market seems to have stabilized to an extent. We have seen marginal improvements to home values with hopes of gradual improvement, but several threats to the housing industry still lurk. Some of the valley’s areas are likely to improve this year as well, so lets look at the pros and cons of the Salt Lake housing industry.

    Lets look at the positives first.
    • Down town Salt Lake City has seen revitalization due to City Center and renovations to the general area. Home values, including Condominiums seem to be on the rise as interest in the area has spiked. I believe the down town area will continue to improve in value over the course of 2013 with Condominiums making a bit of a comeback in the area.
    • Interest rates have remained steady thus far. If they continue to stay low it will enable masses of new homeowners to enter or re-enter the marketplace.
    • Bar any unforeseen issues it appears that the market has bottomed out for the most part. This means more potential homeowners have interest in buying now that the fear of losing equity is largely resolved.

    There are still some potential problems lurking ahead that could result in new volatility in the market.
    • FHA is under fire for being in the red. The agency is required to federal law to keep a 2% reserve. Due to the ongoing foreclosures and defaults FHA may need a federal bailout of up to $16Billion dollars. Should FHA face the instability and uncertainty the rest of the industry has it will shake up the entire housing industry as it is- along with HUD partners VA and USDA housing- the last source of low down payment financing for Americans.
    • The newly organized Consumer Financial Protection Bureau (CFPB) may be headed for big change over the course of the year. The CFPB interim appointee was never confirmed by the senate, and in unrelated lawsuits federal courts have recently ruled that new rules coming from agencies overseen by an unconfirmed appointee must be retracted. The CFNP has never had a confirmed appointee in charge, so the agency may be starting over again. This could result in positive or negative change, what we know for sure is that change is still likely- and change usually results in uncertainty.
    • Nothing strengthens the economy like a free market does. The ongoing changes and upheavals in the mortgage industry has kept most home lenders from introducing new product lines or offering any mortgages that are not being backed by HUD, Fannie or Freddie. This means there are fewer resources available to consumer, thus fewer consumers that can buy homes. This factor will continue to limit housing growth unless lenders feel confident about being able to open up its portfolio of loan products. Nothing in the foreseeable future suggests regulators will allow free market lending in the future, and nothing suggests lenders will change their current approach to mortgage lending.

    All in all we believe the Salt Lake area will see moderate growth this year, but do not expect to see a strong comeback in 2013.
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  • Over Regulation Pains

    The CFBP- the new regulatory agency for mortgage lenders and brokers -has started a study into the compliance costs associated with mortgage lending. The problem stems from multiple regulations being implemented from various agencies- coupled with an atmosphere of government led nanny state for mortgage lending. So the question is- Who gets hurt the most by government over-regulation?

    The consumer takes the biggest hit, and often are not even aware of the costs associated with these regulations. Those who push for government regulations often fail to see the full consequence of the actions put in place. This is often referred to as unintended consequences. Whenever the costs increase for the banks and lending institutions they are forced to pass on those costs to consumers via higher interest rates and/or fees. As a result the consumer essentially pays for the regulation- which often does not help that consumer at all.

    To illustrate the problem let’s take a look at the rules regarding appraisal practices. The problem stemmed from concerns of appraisers over-estimating the value of homes- resulting in lenders lending too much and consumers paying too much for new home purchases. The Feds solution to the problem was to implement a policy requiring appraisal management companies to be established as a buffer between loan officers and appraisers- an attempt to alleviate appraisers from the pressure that could potentially be applied from a loan officer or lender to improve the value of the home, usually in order to make the loan work.

    Fast forward a year and consumers are paying about $100.00 more for their appraisers than before, and are no longer able to use an appraisal completed for one lender with a second lender. Lets say Joe applies for a mortgage loan and has an appraisal completed. The loan is submitted but the lender turns the loan down. Another lender is willing to take the loan- and in the past would use the same appraisal Joe already had paid for provided the appraiser was on their approved list of appraisers. Under the new regulation lenders were required to randomly assign appraisals via management companies and the new lenders legal team explains that accepting the appraisal completed for the other company will violate the new appraisal regulations. The borrower is left with a choice to pay for a second appraisal or not get the loan. The new appraisal has no value to Joe and does not benefit the new lender. All it achieves is satisfying the mortgage regulators.

    Since then attempts have been made to resolve the illustrated problem, and some progress has been made- however very few professionals in the industry feel that this regulation improved mortgage lending in general. Sure- some benefits were achieved, but at a tremendous cost passed on to the consumer and a great burden placed on the mortgage lending community.

    So my take on all of this? I am glad the CFBP is finally studying the cost of its regulations- but its far later than it needed to be- and a true free market system would have fixed the appraisal problem years ago with far fewer consequences to the consumer and at tremendous financial savings. Some regulation is always required to ensure that neither consumer nor lenders are defrauded- and the all parties are treated fairly. Right now however we live in a time where regulations rule the day- and we all pay for whether we know it or not.
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  • Why Does Washington Fear The Free Market?

    For some time I have pondered on why so many Washington officials fear a true free market society. Each year that passes leaves us with more regulation and a loss of freedom in one way or another. Don’t get me wrong, some regulation and policing is necessary for a peaceful society, but where do we draw the line on what constitutes regulation and what constitutes a violation of freedoms? The debate on that issue is sure to outlive us all, but here is my perspective on the issue- Citizens and legal businesses should be free to transact business as they see fit provided neither party commits fraud, and provided both parties are transparent in their representation. If those involved in the transaction are happy, then that makes for a fully legal and legitimate transaction so long as it does not violate national security or other peoples freedoms.

    Of course there are many variables that may require further attention and possible rules- the simple formula outlined above however would solve a great deal of our countries problems if it was adhered to. Lets look at some examples. The year 2008 was disastrous to the mortgage and housing industries. Many banks failed, leaving investors with losses, and many homeowners lost their homes. Unfortunately 2008 was not the end of that saga, the foreclosures have continued, and many banks and lenders are still on shaky ground. Despite massive regulation, the vast majority of mortgage loan products are gone- many of them who provided the American dream to large numbers of Americans. It seems that the sole survivors in mortgage lending are government sponsored and/or backed loans. Few other mortgage types are available today- not because the market won’t allow it, but because government won’t. Regulation, lawsuits and legislation has forced the industry down a road that will be hard to recover from. So what would have happened had government stayed out of the way when the crisis began?

    To start with, had government never been involved in pressuring Wall Street investment banks, Fannie and Freddie into making bad loans, much of the crisis would have been avoided. Putting that aside, lets look at the true cost of what government interaction has had on our housing industry. The homeowners who took out mortgages they could not afford would have lost their homes 3-4 years ago. There would have been no modifications unless the bank chose to do so of its own free will, and foreclosures would have skyrocketed for a year, maybe two. (Did you know the vast majority of modified mortgages went right back into foreclosure in less than a year after the modification?) Many banks would have failed and other mortgage lenders would be closed. However, in all likelihood the housing market would have reset By 2010 – home values would have bottomed out and the banks would no longer have massive foreclosures to deal with. Those who lost their homes would be valued renters, and new customers for new mortgage products that would be available without government regulation. Billions of dollars would have been saved by the banks in legal defense, settlement agreements and ongoing costs due to prolonged foreclosures that have likely benefited only a few. The vast majority of these expenses were brought on by lawsuits and regulations from government. Billions more would have been saved in taxpayer money which was used to bail out the same banks that were being sued. And again these suits have come from that same government that took our tax dollars and gave it to these banks just a few years earlier. Most if not all chose to put that bailout money was to used in other areas than mortgage lending- the banks are hoarding the money due to uncertainty of what government will do. Why would they continue to invest funds into housing when they knew foreclosure remedies that secure their loans would be attacked at every turn and government intervention would be their most expensive cost?

    Had government intervention been kept at bay these same banks would have taking the billions they saved in legal fees and payouts and would have started to reinvest that money by lending to businesses and homeowners, likely under revised lending guidelines. More loans would become available and the economy would have started a healthy recovery a few years ago. Unemployment would have been reduced because businesses could continue to flourish, build and grow. Fewer homeowners today would have jobs and would not be left in financial dire. The foreclosure crisis would likely have been over for some time.

    Instead Washington has by and large declared the free market an enemy to the country, and seized control over our financial lives. They have threatened banks and lending instructions that if they give a loan that Washington does not approve of that both civil and criminal penalties will aggressively be pursued by officials eager to buy votes. They have effectively blamed everyone else for the crisis- the banks, the loan officers, Wall Street- well anyone besides themselves or the homeowners who may be voting for them later. The new legislation we have now was pounded through by some of the worst offenders in Washington- under the guise of consumer protection. The Frank Dodd act has had a devastating effect on our economy and freedoms, yet it bears the names of legislators that contributed to the financial crisis more heavily than most.

    You and I can no longer go to a bank, credit union or private party and take out a loan, even if both us and the lending party both agree its an excellent idea. Uncle Sam has to approve that transaction first because we cannot be trusted to make our own decisions. So I have to ask the question, why are we as a society allowing Washington to take our tax dollars, use it to take away our freedoms and our financial choice, then re distribute that money to those whom they think deserves the money? Why do we allow them to do so as the wolf in sheep’s clothing- telling us along the way that we need them to protect us from ourselves? I for one prefer the freedom to use my money, my home and my assets as I see fit so long as I use it legally, and I will happily accept the consequence that comes from making a financial mistake. Yes, my home may be lost, or retirement account depleted if I invest it poorly, but shouldn’t it by my choice?
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  • Should Banks Be Allowed To Produce It’s Own Mortgage Disclosures?

    The past 4 years have shown us some of the worst effects of over extending family budgets and what the result of government intrusion into private business can be. It shows us that Wall Street executives whose compensation plan is based on short term gains can often roll out bad loan programs that will have dire consequences years later.

    While underestimating the extent of what would come, many of us in the mortgage industry recognized that some type of housing crisis was coming. The numbers just didn’t add up, every year more and more of the household budget was being spent on housing, and the lending requirements got easier and easier. Some of those lending requirements were good- others detrimental. The result of the industry association’s efforts was usually answered in the form of new disclosures and requirements for education to mortgage professionals. While these efforts would have some positive effects, they could in no wise offset the growing trend of spending too much on a home.

    In the late 90’s and early 2000’s A number of powerful government officials and legislatures started to pressure Wall Street banks to make loans to lower income families. In response to the pressure wall street banks as well as Freddie Mac and Fannie Mae made adjustments to their executive compensation plans to realize bonuses tied to the overall dollar size of the loans being serviced rather than on profits to the company. Other compensation adjustments were made as well. By the time the changes were made several homeowners lost their homes, investors took losses, banks closed their doors and politicians blamed everyone else. The remaining banks have tried- with some success- to blame the individual loan officers and mortgage brokers for the crisis. However, mortgage fraud was not the main reason for the housing crisis, but there were problems that needed to be addressed. The main culprit however was the loan products whose guidelines allowed borrowers to borrow more than they could afford. These products- resulting from pressure from Washington combined with Wall Street greed- is what resulted in the massive foreclosure that came just a few years later.

    Since then smoke and haze has surrounded the industry and many state and federal level officials started to litigate against lenders who were foreclosing on its borrowers who did not pay their mortgage. Any technical mistakes made by any bank attacked fiercely by politicians looking to score PR points. The federal government made settlements of historic proportion with the most prominent banks in the country. Regardless of whether you agree or not on the government’s handling of the banking industry one indisputable fact remains- Investors are less likely now than ever to invest in private mortgage financing out of fear of government lawsuits and prosecution. As a result very few private mortgage loans are left, leaving consumers to shop between conventional loans backed by Fannie and Freddie- both established by government, or government loans backed by FHA, VA and USDA.

    Now the CFBP wants to test a new system for disclosure with mortgage bankers to help address this problem as well the confusion that has come from mountains of technical mortgage disclosures. Included in the proposal would be to provide a safe harbor for banks that follow certain rules with certain loan types. The other is to allow banks to issue their own disclosures rather than the required disclosures currently required by federal law. Many argue the current disclosures are so confusing that even industry professionals have a hard time making sense of them.

    Allowing banks to provide its own disclosures – with requirements of course- could aid in bringing more mortgage products to the table once again. Further- a safe harbor rule would go a long way towards re-establishing a healthy mortgage industry where investors feel safe to once again lend outside of the government established mortgage products. This influx of mortgage money could help the housing market rebound as more borrowers would qualify to buy homes. Jobs in real estate and construction would be generated and the economy would benefit. I am supportive of these changes If these rules are made and implemented in a common sense way.

    I would however love to see one more set of rules enacted to ensure a repeat of the past won’t happen again. First- No elected official or government agency should be able to pressure lending institutions with regard to the loan types that is offered other than through public mediums. The backroom deals between politicians and bankers need to end. The market should dictate what products are available, not a special interest lobby or a powerful politician. Second- all bonuses for mortgage bankers and servicers should be based on the long term profitability of the portfolio- with bonuses being amortized and adjusted for the coming 5 years. We are far less likely to see a repeat of this crisis if the personal financial incentives for making bad loans are eliminated.
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  • Fiscal Cliff and Mortgage Rates

    The looming financial cliff facing the country is likely to have some impact on mortgage rates and home ownership. While nothing is guaranteed with respect to what might happen to mortgage rates, many economists are predicting that interest rates will move in the upward direction- something that will hurt potential homeowners and those looking to refinance their homes.

    The Fiscal Cliff is a result of the end of the current tax cuts- set to expire January 1 2013, coupled with pre-determined cuts in federal spending. The uncertainty resulting from what might transpire will likely affect the market- and as is often the case uncertainty is typically not good for the economy. Projections include losses of jobs, reduction to the GDP and a pool of investors who are likely to become more cautious about their investments.

    So how do mortgage rates play into all this? Mortgage rates are driven by the secondary mortgage bond market. Mortgage bonds are purchased by investors based on certain rates of returns. As the mortgage bonds yield a higher payout to investors the interest rates go up. The more investment dollars available to buy mortgage bonds the lower the interest rates go, and vice versa. If the fiscal cliff results in investors reducing the amount of investment dollars they place in mortgage backed bonds the market will respond by increasing interest rates to entice more investors to bring their dollars to the table.

    So what does this mean for the average homeowner? Now is a good time to lock in interest rates for a refinance or purchase. Rates are at historic lows and are unlikely to drop further. The Fiscal Cliff may very well result in increased mortgage rates- so waiting to refinance or purchase is more likely to result in an increased interest rate than what the current market bares.

    Most mortgages today take 3-6 weeks to close. Considering the upcoming holidays we recommend a longer term lock such as a 45 day lock for those looking to make a move at this time. To lock your loan, simply fill out the loan quote form on this web page, or call us at 855-2Trillion, or locally at 801-261-2617.
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