Expect Higher Mortgage Loan Rates in 2014; New “QM” Rules May Mean Less Lending

Courtesy of Mish.

In regards to Average 30-Year Mortgage Rate Hits 4.47% (Not Counting Fees); Affordability Check Michael Becker at WCS Funding Group just pinged me with his thoughts on why mortgage rates will go up in 2014 even if treasury rates stay flat.

Michael writes …

Hey Mish,

I was just reading your post on rising mortgage rates and I can confirm that mortgage rates are approaching the highs reached earlier this year in early September.

Additionally, they are set to go higher in 2014 regardless of whether or not the yield on the 10 year Treasury continues to rise. The agency that oversees Fannie and Freddie, the FHFA, has announced another increase in their guarantee fees or g-fees and increases in their loan-level price adjustments or LLPA.

The former are charges to lenders for guaranteeing mortgage backed securities and the latter are risk based adjustments to pricing on mortgages. The new increases in both will be charged to borrowers and will increase mortgage rates as much as .375% for many borrowers.

The FHFA has stated the reason for these increases is to encourage private money, non-Fannie or Freddie, to return to the mortgage market. While that is a good idea and many in the industry would like to see that happen, it’s hard to see that happening with the new Qualified Mortgage (QM) rules issued by the Consumer Finance Protection Bureau CFPB starting on January 10, 2014.

Without going into much detail these new rules will restrict lending in the future and I believe discourage private money from entering the mortgage market.

So with rising rates, increased fees making rates even higher than they would be otherwise, and mortgage credit being further restricted it’s hard to see how real estate will continue to recover in 2014 as affordability decreases.

Regards,

Michael Becker
WCS Funding Grp.