NEW YORK--(BUSINESS WIRE)--Demographics, pent-up demand, attractive affordability/housing valuations, and a steady easing in credit standards should support a more robust 2015 for the U.S. homebuilding and construction sectors, according to Fitch Ratings. We believe the key is sustaining order growth in the face of possible erosion in affordability.
Regulators have eased some lending standards while also proposing changes (such as the FHA reducing private mortgage insurance premiums on its loans) that could provide more access to previously excluded potential buyers.
For example, on May 22, 2015, the Federal Housing Authority (FHA) released guidelines to clarify requirements for lenders in an effort to increase mortgage access. The proposed changes require lenders to promise to follow specific requirements in the FHA's guidelines rather than certifying to somewhat broad, vague language
The Consumer Financial Protection Bureau (CFPB) on July 21, 2015 issued an amendment to the Know Before You Owe mortgage disclosure rule that moves the rule's effective date to Oct. 3, 2015. The rule, also called the TILA-RESPA Integrated Disclosure rule, requires easier-to-use mortgage disclosure forms that clearly lay out the terms of a mortgage for a homebuyer and gives homebuyers three days to review financial documents to ensure loan terms and fees have not changed at the last minute. The bureau is issuing the proposal to correct an administrative error that would have delayed the effective date of the rule by at least two weeks, until Aug. 15, at the earliest. More than 300 members of Congress pushed the CFPB to delay enforcement of the rule until year-end 2015.
In addition, in April 2015, Fair Isaac announced that it would be establishing a new credit score. Currently in a pilot program, the score is expected to be available to more lenders later this year. Some 15 million previously unscorable consumers can now be scored based on alternative data provided FICO by Equifax, Inc. and LexisNexis Risk Solutions. With the new score, consumers who receive a credit card and handle their payments responsibly for at least six months will receive regular FICO scores.
The new score is expected to give more people access to many forms of credit. About one-third of the 15 million individuals who have a score under the new system have a score above 620, according to FICO. The new FICO score, like the traditional ones, ranges from 300 to 850. A number of mortgage lenders approve applicants with traditional FICO scores above 620.
At a National Association of Realtors symposium in early April 2015, Housing and Urban Development Secretary Julian Castro said the FHA is exploring the use of alternative scoring models. Most assuredly, still-tight standards reflect banks' concerns that they will have to buy back delinquent mortgages from Fannie Mae, Freddie Mac, and the FHA years after their origination, sometimes due to minor documentation inconsistencies.
For the fourth straight quarter, more U.S. lenders eased loan approval standards as compared to the number of banks tightening up, according to the Fed Senior Loan Officer Opinion Survey on Bank Lending (released in early May 2015).
The survey shows that prime mortgage borrowers have an easier time getting mortgage-approved at today's mortgage rates, as 20.6% of banks reported an easing of mortgage loan standards during this year's first quarter -- the second-fastest pace of the past 10 years. Only two of 68 banks reported requirements getting tougher. Banks are reducing FICO requirements and lowering hurdles of qualification. As a result, more loans are making it to closing. According to Ellie Mae, 69% of all purchase loans were approved in June 2015. This was the highest level since Ellie Mae began tracking this data in August 2011. We note that challenges still persist and demand will continue to be affected by some narrowing of affordability, diminished but persistent and widespread negative equity, relatively challenging mortgage-qualification standards, and lot shortages.
Generally, we believe growing strength in the economy, employment and demographics should positively influence housing in 2015. Total housing starts are projected to expand almost 14% to 1.11 million as single-family starts advance 12.5% and multifamily volume gains 7.3%. New home sales should improve about 20% while existing home sales should rise about 4%.
For more information please see our special report titled, "U.S. Homebuilding/Construction: The Chalk Line, Summer 2015," which is available on our website at www.fitchratings.com
Additional information is available on www.fitchratings.com
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