Spring blooms eternal ― finally
Housing’s traditional spring buying season has been noticeably sporadic, if not all but absent, since the Great Recession. But this year is different, according to one Wall Street analyst, who says the buying season is “actually taking place.”
That’s because lenders are starting to open their coffers and provide more mortgage money for increasingly impatient consumers who have wanted to buy new homes, but have been prevented by tightfisted banks.
At an industry meeting last month, Paul Miller, a managing director at FBR Capital Markets & Co., said he thinks mortgage originations may reach $1.5 trillion this year. That’s much higher than last year’s $1.12 trillion, or the Mortgage Bankers Association’s 2015 estimate of $1.28 trillion. If Miller’s on target, roughly 30 percent more mortgage money will be available to qualified homebuyers this year than last.
“Credit will be loosened over the next five years,” Miller predicts. However, he also cautions that big banks will remain largely within the tight “credit box” they have inhabited since the downturn began five years ago.
Buyers who aren’t eligible for loans under the government’s Qualified Mortgage (QM) standards, which major lenders follow almost to the letter, may still be able to get home financing through a growing number of smaller, non-QM lenders. And that, observers believe, will help turn the tide that has made America more of a nation of renters since the “easy money” days that ended abruptly with the crash.
Jaret Seiberg, a financial services policy analyst at Guggenheim Securities, also sees some “green shoots” for the housing sector. He says he’s hearing more voices saying, “‘Let’s try to find more ways for people to get into loans.’ There is a door opening to provide relief.”
At the same time, Seiberg still sees some roadblocks to looser lending, and wonders if the recovery will be “the shortest giant” when compared to other cyclical upturns after bad times.
He thinks the nation’s homeownership percentage may stay at its lower-than-normal rate in the low 60-percent range, as opposed to the former rate that topped 67 percent. A 1 percent increase in the ownership rate would lift about 1.16 million households into the ranks of homeowners.
Seiberg also doubts that the nation’s largest lenders will reenter the non-QM space. He wonders, “Is there enough capital for smaller players?”
One possibility for making more mortgage money available is a new twist on real estate investment trusts (REITs).
REITs have traditionally financed commercial mortgages, such as those for office buildings, hotels and the like. But these days, there are more and more REITs focused solely on residential financing.
One such REIT, Cherry Hill Mortgage Investment Corp., was started in 2013 by Stanley Middleman, the president of Freedom Mortgage Corp., a major QM lender. In its initial public offering that year, it tapped into the capital markets for $158 million.
REITs may become mortgage game-changers because they are allowed to pay out large dividends (up to 90 percent of earnings) to their shareholders, which makes them attractive to investors. As they pay dividends, their value grows, and they can then solicit Wall Street for even more money.