Mortgage applications fell over the last week as mortgage rates climb and some borrowers wait for President Obama's mortgage plan to be implemented. However, there may be an even bigger contraction that will prevent any significant recovery--mortgage loan officers are finding it increasingly difficult to help borrowers.
The Mortgage Bankers Association released their index of application to purchase or refinance a home, which showed a 15.1 percent decline in the week ending February 20. The mortgage refinance index was down 19.1 percent and mortgage purchases were off 2.6 percent.
Much of this decline is explained in the MortgageLoan.com mortgage rate index that has risen to 5.21 percent from 5.11 percent a week ago. Borrowing costs are also increasing with reported increases in Fannie Mae and Freddie Mac fees, while credit standards are tightening.
Many are attributing some of the decline in mortgage applications to the hope that President Obama's recently announced mortgage plan will bring better deals. Unfortunately, there is growing concern that implementation may be a challenge.
As was seen in the failure of the Hope for Homeownership program, having a plan and getting it into troubled borrowers hands are two separate challenges.
Not only are these emerging programs very constrained, like previous loan modification programs, but they will find that the market now lacks sufficient qualified mortgage brokers and loan officers to originate the modifications.
Prior to the mortgage crisis better than 80 percent of loan originations were done by mortgage brokers. The population of licensed mortgage brokers is easily cut in half and dwindling. Major banks, like JP Morgan Chase, are completely cutting their wholesale and correspondent programs.
Owen Raun, Principle at RMC Vanguard, says that mortgage brokers and banks like his are "seeing their funding source options constrict." So, while their borrower inquiries are high they are unable to help many of the borrowers. Meanwhile, large lenders are minimizing their lending to preserve capital ratios against deteriorating mortgage portfolios.
This leaves the homeowner with few options to refinance at competitive rates or purchase a new home. There is increasingly no one to take their call as banks starve out their origination capacity. This is forcing homeowners into loan modification scams, who promise to "fast track" a solution or servicing departments that have little mortgage origination experience.
This constriction of loan origination capacity is perhaps having a bigger impact on getting trouble mortgages worked-out than rising borrowing costs and tightening credit standards. Leaving many borrowers wondering who to call and when they might get a call back.
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