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Mortgage Apps Fall Again: Student Loan Debt the Culprit?

Phil Hall
Jun 25, 2014

Mortgage applications dropped again last week—and while this might not come as a surprise, some industry leaders are warning that a variety of economic forces might be molding the housing market into a potentially bleak environment. According to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 20, both the Market Composite Index and the seasonally adjusted Purchase Index decreased one percent over the course of one week, while the unadjusted version of both indexes two percent compared with the previous week. The unadjusted Purchase Index was 18 percent lower than the same week one year ago. Also falling one percent from the previous week was the Refinance Index, reaching its lowest level since May 2014. The refinance share of mortgage activity remained unchanged at 52 percent of total applications from the previous week.  The MBA’s survey covered more than 75 percent of all U.S. retail residential mortgage applications. Gary Acosta, CEO of the National Association of Hispanic Real Estate Professionals (NAHREP), said he did not believe that stagnation was taking root. However, he expressed concern that the home buying picture remains lopsided. “I think some of the spike we saw last year was due to investor activity, and as prices increase, investor appetites have slowed,” Acosta said. “First time buyer activity is still down and I think this is a more important metric to track. Access to low downpayment mortgages will be critical.” Acosta added that one positive development in the current housing scene could be the rising levels of housing prices. “As prices have increased, the investors have started to retreat,” Acosta continued. “This may actually be good news for thousands of frustrated would-be homebuyers, many of whom are Latino and have been out-maneuvered by cash investors for far too long.” However, Andrew Peters, CEO of Tysons Corner, Va.-based First Guaranty Mortgage Corporation (FGMC), predicted that the housing market could see stagnation for the next 12 to 18 months. “We have seen a little bit of swings in either direction, but it is hovering in the same general area,” he observed. Yet Peters was extremely concerned about a bigger picture issue: the possible absence of a new wave of homeowners due to a metastasizing debt crisis. "Student loan debt is the gorilla in the room and it can stop the purchase market from coming back quickly,” Peters continued. “A new generation of homebuyers will be five to 10 years delayed.” Amy Crews Cutts, senior vice president and chief economist at Atlanta-based Equifax, pointed out that the future might be closer than one might think. She cited an April 2013 report issued by the New York Fed that found homeownership rates among 30-year-olds with a history of student debt had plummeted by more than 10 percentage points since the onset of the 2008 economic crash. “It is hard to know if this is because of lack of confidence or if it is because they want it but cannot do it yet because of the economic environment,” Cutts said, adding that the combination of excessive student loan debt with a frayed employment picture will not bode well for college graduates eyeing a home purchase. “There will be a significant delay in the onset of adult activities, like buying a house.” Scott K. Stucky, chief strategy officer at Idaho Falls, Idaho-headquartered DocuTech, noted that whatever housing recovery occurred has been geographically uneven. “I live in Denver and we have seen the housing market as being fairly robust,” he said. “But there are still quite a lot of real estate markets with slow development. We’re in the purchasing season, but not a lot of people are out looking to buy a home.” Still, not everything is gloom and doom. Alice Sorensen, chief investment officer at Phoenix-based LRES, reported that equal amounts of pessimism and optimism have permeated the industry. “I had lunch with an originator and he said, ‘I never thought I’d be in a condition where break even would be considered successful,’” Sorensen said. “To me, that’s not what I would call a rosy future. However, I am also hearing people say, ‘If I don’t buy something now, I won’t have anything to choose from.’” And Donald J. Frommeyer, president of NAMB—The Association of Mortgage Professionals stressed that declining mortgage applications should be viewed in the wider scheme of activities. “A drop in applications does not mean lending is off,” Frommeyer said. “I have a lot of applications that I have been holding from 30 to 60 days because people are still looking for homes.”
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