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- Buyers are regaining control of the market and by the fourth quarter of this year, Ishbia says, it’ll be a more normalized market.
- If the FHA case number comes in after the appraisal is done, loan officers can just update the appraisal with the new case number.
- It's going to become more expensive to run a mortgage business with these new capital standards.
Point 1: The Real Estate Market Is Cooling
The housing market is coming down off its high, transitioning from a seller's market into a buyers' market for the first time in years. Home prices have skyrocketed and The Fed’s decision to keep hiking up rates has put a damper on buyers' offers. Ishbia says even institutional investors are backing out of the market now because they won’t get a high profit on rents.
Blackstone Group's Home Partners of America, as well as a couple of other groups, are pausing their purchases of single-family homes, he said. “They know they can’t buy it and rent it for a profit,” Ishbia said.
Ultimately, this is slowing the appreciation of home values. With fewer people have buying power due to inflation and rising interest rates, buyers are regaining control of the market. By the fourth quarter of this year, Ishbia says, it’ll be a more normalized market.
“A record number of buyers who have a contract are now pulling out of their contracts,” he said. “It was like one of the biggest numbers, 16% of all contracts in the month of July.”
This means mortgage lenders who can get loans closed fast and efficiently have the advantage in today’s market, so buyers can put in offers below or at the asking price.
Point 2: FHA Case Number and Appraisal Change
The U.S. Department of Housing of Urban Development (HUD) recently updated its guidance procedures that will affect the time and efficiency of loan closings. Previously, HUD mandated that the case number be dated before the appraisal. Now, if the case number comes in after the appraisal is already done, loan officers can just update the appraisal with the new case number.
This has long been a paint point for brokers and loan officers, so industry professionals will be relieved to find out HUD is tweaking this process, Ishbia said.
Point 3: FHFA Increases Capital Eligibility Requirements
The most worrisome point in Ishbia's video was related to the increase in capital eligibility requirements for seller/servicers and issuers. The Federal Housing Finance Agency (FHFA) and Ginne Mae announced the increase on Aug. 17, stating it is intended to promote confidence in approved lenders and improve the safety and soundness of the U.S. mortgage-backed securities (MBS) ecosystem.
The new standards do not take effect until September 2023, but they do signal that tough times are coming for midsize lending companies, especially nonbank lenders, Ishbia said.
“The middle-of-pack lenders — the $1 billion to $10 billion retail lenders or correspondent lenders — are going to have to either get bought by big guys or go back to being brokers or non-delegated correspondents,” he said.
It's going to become more expensive to run a mortgage business with these new capital standards, he added, and likely cause the industry to consolidate even further. Middle-of-the-road companies will have a harder time retaining servicing, because in order to gain more capital they’ll have to increase their margins, and bigger margins makes them noncompetitive, Ishbia said.
The changes likely won’t affect lenders until 2023 or 2024, but it's important to be aware of the effect they will have on retail lenders, he said.