In the News Presented by Prairie Title
Commentary by Frank Pellegrini, Prairie Title CEO
January 19, 2015 – I’d like to split this edition of In the News into two parts, the first covering a hopeful sign for the marketplace in 2015, the second part focusing on repurchase agreements, an oftentimes overlooked business risk for lenders.
There are many reasons for optimism in the real estate industry this year, none more important, I believe, than the hoped-for movement of renters into the homeowner category. The Motley Fool (an insightful voice about economic issues) recently ran a piece positing that millions of American renters may be poised to become homeowners following the FHA’s announcement that it will reduce its mortgage insurance premium from 1.35% of a loan's value per year to 0.85%. I think they are spot on in that analysis.
As the author notes, “A borrower with a $200,000 30-year FHA mortgage would see their annual premium drop from $2,700 to $1,700, which would save them about $83 per month on their mortgage payment.” That’s a significant impact on most prospective homeowner’s monthly budgets and really could make a big difference in the real estate economy this year.
An article on Realtor.com from last month titled, “Changes pave the way for more first-time buyers in 2015,” provides perspective on first time buyers. Bloomberg also has valuable insight about young home buyers returning to the market.
Item #2: With tighter regulation and increased scrutiny on loan documentation, the risk of lenders being forced to repurchase loans due to faulty paperwork is growing. It’s been my observation that many lenders and attorneys are not as well schooled in the risks as they should be. This Forbes article is from 2012 but is still worth reading. In it, Mark Greene asserts that, “Mortgage lenders have suffered staggering losses and gone out of business because of the dreaded loan repurchase.”
What’s the best way to minimize repurchase risks? Reviewing your loan-making process and making appropriate changes that work for your organization and fall clearly within regulatory guidelines is a great start. While you’re making your assessment, consider steps you can take to minimize risk through automation. For more information, read this Housing Wire article from last fall about how to take advantage of technology to reduce repurchase risk. And please feel free to contact me with any questions you have about this challenging issue.
Questions or comments? Call me at 708-386-7900, or send me an email: email@example.com.
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