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This year presented us with major changes to mortgage lending rules. These new guidelines aim to curb some of the excesses that occurred during the sub-prime years—hopefully resulting in a lower risk of default and foreclosure by borrowers and a healthier real estate climate for everyone.
QM: “Qualified Mortgage”
This all came about as one offshoot of the Dodd-Frank legislation that went into effect in 2014. It creates a new category, “Qualified Mortgage.” Lending institutions are required to document each loan they deem to be a QM; when they do, they benefit by being able to sell them to Freddie Mae and Fannie Mac, and are protected from legal action in the event of a future default.
The reason that these changes won’t keep most borrowers from getting a Frankford loan is that loans that don’t qualify (“Non-QM” loans) will still be offered by some banks—they’ll simply keep them on their own books.
The bedrock requirement for a QM is an evaluation of the borrower’s debt-to-income ratio. That’s the projection of debts divided by income on a month-to-month basis — especially important when getting a Frankford loan with a variable interest rate. If it seems to you that this calculation makes common sense for any loan—I’m in your camp! The reason a bank might choose to issue a loan that does not meet the letter of this requirement could be their analysis that the percentages dictated by the rules are too strict for a particular borrower.
A Qualified Mortgage can’t have any of the risky factors that were hallmarks of the mortgage meltdown. Included are “no” or “low-doc” loans; loans with terms longer than 30 years, interest-only loans, and those with minimum payments that don’t keep pace with interest rates, causing the loan balance to increase.
So: what’s the bottom line for buyer’s intent on getting a loan in Frankford this year?
The good news: most loans will go through as before (estimates are about 95% of them). But more paperwork and longer processing times are likely, and since fees and charges for a QM cannot exceed 3% of the mortgage, getting a smaller loan might become more difficult if banks determine they can’t make a profit.
In any case, coming prepared is still the best insurance that your loan goes through as smoothly as possible. If you’re looking to buy a home in Frankford this season, I’ll help make sure your preparation is first-rate! Call/text 302-228-7871 or email me, Russell Stucki, REALTOR ® of Beach Real Estate Market to provide detailed information on Delaware homes for sale, investment and commercial properties, luxury and waterfront homes, condos/townhomes, new construction, lots and land, farms and equestrian properties located in but not limited to Bethany, Bethel, Bridgeville, Dagsboro, Delmar, Ellendale, Fenwick Island, Frankford, Georgetown, Greenwood, Harbeson, Laurel, Lewes, Lincoln, Milford, Millsboro, Millville, Milton, Ocean View, Rehoboth Beach, Seaford, Selbyville, Delaware.
It does seem to be time for an in depth forecast about our area’s housing outlook for 2015. The prediction game is going strong everywhere else this week, with print and online journalists and TV talking heads interviewing experts and each other about what to expect in the coming year. Some make noteworthy predictions—but more seem to be doing their best to sound authoritative while remaining vague enough to avoid provably wrong calls.
I have to sympathize. Last year, after delving into the Frankford housing outlook to come up with predictions, the one I put at the top of my list was a forecast that mortgage interest rates would soon be climbing. That was safe—rates had been so low for so long, history told us they had to rise, didn’t it? Besides, all the experts agreed.
What then happened in 2014 explains why financial prospectuses tend to footnote projections with sentences like "past performance is no guarantee of future results." Rates did rise; but then sank again. So this year, it’s probably a better idea to shelve the crystal ball in favor of laying out some of the factors we do and don’t know—factors that should influence the direction of Frankford housing trends for the coming year.
First, what we do know for sure. Since Baby Boomers make up the largest demographic in the country...
Uh-oh! No they don’t. The Census Bureau now says that the cohort of 23-year-old Americans has just become the largest in the country. Followed by 24- and 22-year olds, respectively. Probably why the chief economist at the NAR® projects that this generation will "drive two-thirds of household formations over the next five years." He says 2015 will become the point at which the millennial generation’s presence in the housing market will be truly felt for the first time. So what we do know is that younger buyers have begun to join the ranks of homeowners in substantial numbers. That’s different; it has the look of a major trend.
And mortgage rates will rise (because they have to, right?) Again, this one only seems to be a reliable projection. At this point, a 30-year mortgage is actually lower than it was a year ago. It is thought that foreign influences (uncertainty in Europe; economic weakness in the Far East) are what have held down U.S. housing financing rates. If that’s true—and since no one can say with any certainty what to expect from events overseas—mortgage rates and their influence on Frankford housing activity should more accurately be placed in the don’t know column.
So will Frankford housing prices and sales activity rise in the coming year? We do know that the public opinion polling data supports that likelihood. Consumer confidence is building, possibly because of a brightening employment picture. In fact, real estate mega site Trulia reports that their samples tell them "consumers expect 2015 to be better, especially for selling a home."
Economists agree. Fortune.com says that economists are "nearly unanimous in predicting that home values would continue to rise" and that "surveys of homeowner sentiment suggest that more of them will look to sell their homes" in the coming year. If you are leaning in that direction yourself, there’s one factor we know for sure: I’ll be standing by in 2015, ready to put all of my resources and experience to work for your Frankford home sale!