With 2015 less than two weeks underway, Fitch Ratings is the latest forecaster predicting great things for housing in the coming year. However, unlike other commentators, whose projections were based on encouraging market trends, the ratings agency says it's a combination of recent government actions that reinforces its view.
In a report released Monday morning, Fitch outlined five big events—all of which have taken place in the past few months—that, taken together, "could have a relatively meaningful impact on home buyer psychology, pent-up demand and housing trends in 2015 and beyond," the company says.
- The Federal Housing Administration's (FHA) announcement that it will lower insurance premiums to 0.85 percent annually: Historically considered one of the top resources for low-income and first-time homebuyers, FHA has fallen off in the past few years as it's been forced to raise premiums and require life-of-loan payments to help shore up its capital reserves. As a result of the changes, Fitch estimates that FHA's share of the new housing finance market through Q3 2014 was down to 11.9 percent from 15.6 percent in all of 2013 and 20.4 percent in 2012. With premiums set to come down by the end of January—a move the White House estimates will save the average FHA borrower $900 annually—the agency expects FHA-insured loans may become a more attractive option again.
- Fannie and Freddie's move to lower down payment requirements: In another action to open up mortgage lending, the Federal Housing Finance Agency (FHFA) announced in December that it has directed Fannie Mae and Freddie Mac to introduce programs offering down payments as low as 3 percent to qualified homebuyers. To minimize risk, FHFA said the programs will take into account compensating factors to prove creditworthiness and will feature homeownership counseling.
- FHFA's clarified rep and warrant framework designed to reduce lender confusion: Taking notice of FHFA's pursuit of certain originators over loans they sold to the GSEs, many lenders have set up stricter credit overlays (often worse than the GSEs' minimum requirements) in order to mitigate putback risk. To reassure lenders, both Fannie and Freddie updated their frameworks in November to better define what they consider to be a misrepresentation, a step that will hopefully spur originators to expand their lending criteria.
- Regulators' finalizing of the qualified residential mortgage (QRM) rule: FHFA, the Fed, the Comptroller of the Currency, and other financial regulators finalized in October a rule requiring banks to hold on to a portion of loans they sell, cutting out an exemption for low-risk mortgages. The final rule did away with an earlier provision requiring a 20 percent down payment for low-risk loans after mortgage bankers and trade groups voiced concerns about how such a requirement would restrict credit.
- A welcome decline in oil (and fuel) prices: An oversupply of oil has brought costs down by more than half, slashing costs at the pump considerably. (In an interview with USA Today, Saudi businessman Prince Alwaleed bin Talal said he doesn't expect to see oil prices climb to $100 per barrel again.) The decline has left American drivers with more disposable income, opening up affordable housing options for those who were worried about their commute.