Applications for home mortgages, including both new purchases and refi’s are at the lowest levels in more than a decade. While many observers blame rising interest rates for the paucity of new loan applications, factors such as a poor job market, flat to down consumer income and excessive regulation are probably more important. Commercial banks are fleeing the mortgage lending and loan servicing businesses, in large part because of punitive regulations and new Basel III capital requirements which demonize private mortgage lending.
"Rules enacted last year appear to be steadily forcing banks to exit the mortgage servicing business, transferring such rights to nonbanks," Victoria Finkle writes in American Banker. "The situation is stoking fears on Capitol Hill and elsewhere that regulators went too far." Those fears are well founded.
The latest data from the Federal Deposit Insurance Corp. confirms that the loan portfolios of commercial banks devoted to housing are running off. For example, the total of 1-4 family loans securitized by all U.S. banks fell almost 5% in the fourth quarter of 2013 to a mere $610 billion. Real estate loans secured by 1-4 family properties held in bank portfolios as of the fourth quarter fell to $2.4 trillion in the last quarter, the lowest level since the fourth quarter of 2004. The FDIC reports that the amount of 1-4 family loans sold into securitizations exceeded originations by almost $30 billion.
As 2014 unfolds, look for lending volumes in 1-4 family mortgages to continue to fall as a lack of demand from consumers and draconian regulations force many lenders out of the market. While leaders such as Wells Fargo have indicated that they will write loans with credit scores in the low 600s range, there are not enough borrowers in the below prime category to make up for the dearth of consumers seeking a mortgage overall.
Trevana Properties is a placement company working with a variety of hedge funds, REIT's, commercial banks, specialty boutique lenders, private investors and other funding sources not widely known to the general public.