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Forward on Reverse: DRA 2005: A conversation with Stephen A. Moses of the Center for Long-Term Care Reform Inc.: Medicaid rule change to boost demand for reverse mortgages

National Mortgage Professional
Sep 08, 2006

Keeping it all in perspectiveJoe Amorosointerest rates, home prices Consider this recent gloomy headline from USA Today: "Home sales sink; rates, inventory rise; expected Fed hikes lower expectations." Reading through the stacks of mortgage trade and national business papers on my desk, it's easy to see why many potential homebuyers are confused about what to do and why a few originators may find this to be a discouraging market. Interest rates have increased. There's speculation that house prices in certain markets may be over-inflated. Rising prices on other goods, especially fuel, have impacted home-buying power. But on the other hand, consumer confidence is up, jobless claims are down and our economy is growing. What's the true picture? That depends on whom you ask. I know firsthand the challenges that originators are facing in the market today, and I don't take those challenges lightly. But with more than a few years in the business, I know one thing is for certain: It's still a good time to buy a home. For those of us on the front lines of communication with borrowers and referral partners, our mission should be to deliver this statement with confidence and help them put all of this competing information in perspective. Let's examine three of the most-discussed topics in the mortgage business today - interest rates, originations and housing bubble speculation. Interest rates For those of us with a few decades' worth of mortgage banking experience, we know that despite the modest rate increases we've seen lately, rates are still at historical lows. Granted, they're not as low as in 2003 and 2004, but can you remember where we ended the year 2000, the early 90s, or worse, the 80s, when rates approached 20 percent? It may help to look at a snapshot of the past couple decades. This data is taken from Freddie Mac's Primary Mortgage Market Survey and represents the annual average for a 30-year fixed-rate mortgage. Year Average Rate 1975 9.05 1980 13.74 1985 12.43 1990 10.13 1995 7.93 2000 8.05 2005 5.86 2006* 6.70 *as of June 2006 Where will rates go for the rest of 2006? Here's a recent statement from the Mortgage Bankers Association (MBA): "We project that mortgage rates will rise from the current level of about 6.6 percent to about 6.9 percent by the end of the year." (Source: Mortgage Finance Commentary #13, June 7, 2006) How do we translate this for skittish or hesitant borrowers? "Now is a better time to buy than in December." Originations The MBA also predicts that total originations for this year will decline by 18 percent from 2005. But in the theme of keeping it in perspective, 2006 will experience the fifth-highest level of originations ever. Last year, we saw the second-highest level, while 2003 ranked as our industry's top-producing year to date. With rising rates, it's likely that refi originations will also take a substantial short-term hit. Looking ahead over the next few years, however, it's probable that refi origination activity will rebound somewhat, as a portion of adjustable-rate loans will be refinanced into fixed-rate mortgages when borrowers face their first payment resets. About housing bubbles Recent information released by the National Association of Realtors suggests that home price gains are moderating or normalizing in many markets. This is to be expected. For example, the median price of a single-family home is now approximately $229,700 - an increase of 6.4 percent from a year ago. It's important to keep in mind that price appreciation of 10 to 12 percent per year is neither sustainable nor reasonable. According to the Office of Federal Housing Enterprise Oversight, home price appreciation has slowed to an annualized 8.1 percent rate in the early part of 2006. And what about the looming speculation that many markets are poised to collapse? According to PMI Mortgage Insurance, only a small handful of major metro areas (13) face a 50 percent or greater chance of a housing price correction in the next two years. While that does not diminish the concerns of residents in those specific markets (eight of the 13 are in California), it doesn't seem prudent to make sweeping national housing bubble forecasts based on only 13 markets, especially while areas in Texas, North Carolina and New Mexico, for example, are actually reporting double-digit growth. What lenders are doing Most lenders understand what products drive this market, and we're listening to you to determine which new products will effectively meet your borrowers' needs. We have our ears tuned to leading economic indicators, and we're working to roll out products that will deliver strong returns over the long term. One trend you'll continue to see is a focus on more affordability products: longer amortization periods, interest-only loans with fixed rates and newly revised option ARMs with added borrower safeguards. We'll also continue to arm you with effective marketing tools to educate customers on all of the latest product options and help them understand why it's still a good time, in the grand scheme of things, to invest in real estate. It's true that the last few years in our industry have been exceptional. It's unlikely we'll see a return to the levels of purchase and refi originations we saw in 2003 and 2004. But put in its proper perspective, the market we have now is still one of the best, historically. Joe Amoroso is senior vice president of Opteum Financial Services. He may be reached by e-mail at jamoroso@opteum.com.
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