Seeing the Silver Lining

Lenders see bright spots in the changes ahead.

Since the bottom dropped out of the housing market a few years ago, consumers have grown more cautious about their spending habits. Even those who didn’t suffer major losses—like foreclosure or a dramatic drop in property value—saw the changes in the market and the lending rules as good reason to hunker down and hope the storm clouds would pass. These days, there seem to be a few bright spots on the horizon.

Continuing low interest rates

As of mid-January, mortgage rates continue to hover at or below 4%. Matt Morris of Charter Bank in Johnston says, “Rates have actually dropped a bit since the first of the year, and we anticipate they’ll remain fairly level for the rest of 2015.”

And Cade Lindaman of Community State Bank adds, “A lot depends on how the economy reacts to the current legislative session, but rates should be pretty similar to what we saw in 2014.”

Increased activity

Continued low rates are already encouraging activity in the housing market as homeowners feel more confident in the economy and in home values.

“After the housing market collapsed, we were seeing way more refinances than purchase mortgages,” says Kim Downing of Bankers Trust. “Homeowners were taking advantage of the unbelievably low rates, but they were cautious about selling when home values were dropping.”

As the economy has leveled, home values have begun creeping up again, which is good news for the lending industry and the home construction trades, too.

“Homeowners who didn’t refinance before because of credit issues or decreasing home values are either looking to refinance now that their home value has gone up or they’re looking at a new home and a new mortgage,” Downing says.

More-sensible regulations

Government regulations after the housing collapse seemed more cumbersome in their effort to protect against risky lending, but new policies taking effect in August 2015 aim to simplify rather than confuse the process.

“The goal is to make the disclosure forms easier to understand, so what are now multiple forms will be consolidated a bit,” Morris explains.

The truth-in-lending disclosure and the settlement form must be combined into one document effective August 1. “Hopefully this will be better for consumers,” Downing says. “The government is even redefining what constitutes an application. They want full disclosure to all consumers from beginning to end of the mortgage process.”

Lenders will be spending much of the next several months preparing for these new regulations—training personnel, updating software, and ensuring that they’re up to speed on exactly what the government requires.

“We’ve always tried to make it so consumers don’t really even notice the changes,” Lindaman says. “The trick is adjusting to the moving target as the government continues to revise the requirements between now and the August start date.”

Both Downing and Morris echo Lindaman’s perspective on the pending regulations. Morris says, “So far, the model forms we’ve seen look easier, and we don’t anticipate the process being any different as far as the consumer is concerned.”

However, the regulations mean a serious learning curve for the lender. “Basically, not one disclosure form will look the same as it does right now,” Downing says. “And the HUD closing statement, which currently should be made available to the borrower at least a day before closing, will be required three days prior, which means lenders have to expedite the paperwork a bit quicker.

“It’s a very big deal to the consumer, taking on a mortgage, and we always encourage homeowners to work with a lender they trust to make the process as easy to navigate as possible,” she adds.

More borrowing options

Interest-only loans and low down payment options practically disappeared from the lending market a few years ago as lenders grew more conservative.

“Down payment options are slowly opening up again,” Lindaman says. “We at Community State never did interest-only loans anyway because they were just too risky for both the lender and for the borrower, but we’re seeing 3% down product again.”

“We try to find the product that’s best for each customer,” agrees Morris. “We have 3% down payment products and some other combinations that provide more equity sooner so homeowners don’t end up owing more than their home is worth.”

Downing notes that in addition to 3% down products, the FHA also recently dropped the monthly mortgage insurance rate. “That rate had increased to nearly 1.35%, which can be a significant barrier for many FHA customers. It’s now down to 0.85%, which is more in line with conventional loans, making it easier for lower- and middle-income borrowers to get into their own home again.”

Few would argue that the housing collapse caused some pretty dark skies across the country, but the silver lining is beginning to peek through. Savvier consumers and safer lending practices make for a much stronger housing market in the long run— and more opportunities for the construction trades for years to come.