The future of mortgage rates and the mortgage industry

December 29th, 2007

Mortgages and the mortgage industry were the top story in 2007, in my humble opinion.

So what does 2008 hold for rates, loan availability and mortgage regulation? I have no idea, so I asked a panel of experts.

They gave such comprehensive answers I decided to split their responses into two parts, so check back next weekend for part two.

And we’re off…

Q. Where do you see jumbo and conforming rates headed in 2008, especially in Orange County ? ( Note: Conforming refers to loans up to $417,000 and jumbos are greater than $417,000 )

Edward Leamer, director of the UCLA Anderson Forecast

:

We expect conforming rates down modestly say to 5.75%, with jumbo spreads narrowing from 100 (basis points) over conforming to about 50 over. [ Editor’s note: a basis point is 1/100 of a percentage point. Thus, 100 basis points equals 1 percentage point. ] This parallels the modest decline in 10-year treasury rate and a narrowing again of the risk spreads that jumped in August

.

Randy Johnson, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a broker in Newport Beach :

I think that rates for good credit conforming loans will continue to trade in a range that will be good for borrowers and the industry. As to jumbos, unless we get some health back in the secondary market, we will continue to see spreads between conforming and jumbo that are higher than historical numbers. That is a worldwide problem with the entire international banking community involved so it’s harder to predict. Intermediate term jumbo ARMs will be the loans of choice for those who need jumbo financing. (See additional comments below.)

Jack Kyser, chief economist of the Los Angeles County Economic Development Corp., which also tracks O.C.:

I would expect rates to run at current levels well into 2008, as there is still aversion to risk. Towards year-end, they could ease.

Q. Do you see more government intervention in 2008 to prevent foreclosures?

Mike Hegna, Bank of America ’s Consumer Real Estate Southwest Region Executive ( photo not provided ):

With the foreclosure crisis spreading, it’s natural for government leaders to react to the need of their constituents for help. Bank of America is in discussions nearly every day with leaders at the state and federal levels to share our advice on how the government can provide effective relief. We believe that awareness of loan modification opportunities is one of the keys to helping alleviate the crisis. Lenders like Bank of America, which does not have a subprime portfolio, can still help by helping increase awareness, which can make a big difference.

Edward Leamer, director of the UCLA Anderson Forecast:

In this election year, politicians of every stripe will be climbing all over themselves to offer at least the appearance of a bailout for subprime borrowers. In reality, our federal and state governments do not have the right to intervene in private contracts except under very exceptional circumstances, and no one is likely to suggest using taxpayer dollars to help these borrowers. Things can be done around the edges like an increase in conforming loans temporarily to about 600K.

Jack Kyser, chief economist of LAEDC:

There will be more proposed interventions, but we have to see what is actually implemented. 2008 is a very political year.

Randy Johnson, Newport Beach broker:

I’m not much for government intervention but it is clear that they already have so many fingers in the pie, what’s one more? We have the Fed, FTC, OCC, HUD, OTS, FSLIC, FHLBB, FDIC, and I don’t know who I’ve forgotten. Indeed, part of the problem is that there are so many agencies involved in this that they have always been pointing to someone else and saying, “It’s not MY job, it’s HIS job.” As a result no one did anything which is part of the reason why we are in the mess we find ourselves.

It does seem like national licensing of mortgage brokers is likely to happen. While there were and are slimy mortgage brokers to address just that group is silly when you consider how many mortgage banking firms are still operating with unlicensed reps who will continue to be unlicensed after additional regulation.

I do think that modifying the bankruptcy law to allow judges to modify mortgage loan terms seems like a good idea that should have been included in the last revision of that law.

No one talks about this but there was deception on such a grand scale at some of the larger firms. I am led to believe that some of these wrongdoers ought to go to jail. Those guys may have certificates for millions of shares of worthless stock, but they stuffed a lot of plain old cash in the mattress. Visible jail time might deter someone in the next cycle when someone wants to start it again.

We have an industry about which it can reasonably be said that you can violate all kinds of laws, diddle your customers, and make a lot of money and you will never have to answer for your transgressions because there isn’t any enforcement. Is it any wonder we attracted such scumbags?