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Uncertainty to Permeate New Year Despite Some Regulatory Clarity

The new year will bring some clarity to the housing market and likely some loosening of credit, though an air of mystery does still surround some aspects of the industry, according to ""FBR's outlook"":https://fbr.bluematrix.com/sellside/EmailDocViewer?encrypt=9a483343-937b-4538-b341-67e1b6c35302&mime=pdf&co=fbr&id=ryan.schuette@dsnews.com&source=mail&pdfFileExtension=.pdf for 2014.

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""In Washington, 2014 will be the year of the regulator,"" FBR said in its outlook.

While Washington does appear to be focused on expanding mortgage credit, FBR believes we are entering ""the beginning of a more aggressive regulatory stance.""

With Mel Watt, a former Democratic senator from North Carolina, taking the helm at the Federal Housing Finance Agency (FHFA) and three openings at the Federal Reserve, some uncertainty persists despite some clarity surrounding Qualified Mortgages (QM) and other regulations in the housing industry.

Additionally, the Fed's recent decision to taper stimulus spending in January provides another source of uncertainty for the industry.

FBR predicts despite the tapering, mortgage rates will not rise significantly in the new year but instead will be largely stagnant.

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As far as Watt is concerned, FBR believes the new FHFA head will focus on expanding credit availability to qualified borrowers.

He will review possible changes to the Home Affordable Refinance Program (HARP), consider principal forgiveness at the GSEs--something former Acting Director Edward DeMarco adamantly refused--and will be ""unlikely to lower loan limits, increase g-fees, or implement new limits on multifamily lending,"" according to FBR.

FBR believes Watt will also repeal DeMarco's recent decisions to increase fees for borrowers with lower credit scores and higher loan-to-value ratios.

Overall, Watt ""should greatly improve mortgage credit availability,"" according to FBR.

Regarding the open positions at the Fed, FBR said, ""We believe this is the least appreciated policy risk of 2014.""

In regards to the QM and qualified residential mortgage (QRM) rules, FBR believes the new rules will restrict credit somewhat, although they will have the positive impact of making the market ""less volatile.""

QRM will likely be finalized in the new year and will likely follow the QM's example of including any loans approved by Fannie Mae, Freddie Mac, or Ginnie Mae.

As for GSE reform, FBR believes the issue will continue to be a topic of debate in congress but is unlikely to be resolved in 2014.

Home purchase originations will increase, but the increase will not be significant enough to counter the continued decline in refinances.

At the same time, housing construction will grow, mortgage insurers will benefit from the emerging purchase market, and single-family real estate investment trusts will continue to grow with the possibility of consolidation in late 2014, according to FBR.

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.
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