Outlook for Mortgages, Rates and Changes for 2013

As the end of year approaches, it is once again time to look at deadlines for this year, as well as, changes that will take place next year. The new year may find it difficult to match the unexpected and positive housing market results of 2012. In the meantime, there are some outlooks and predictions for mortgages, rates and changes that will take place in 2013.

Freddie Mac's U.S. Economic and Housing Market Outlook for December was released last week and gave a hint at what is expected. According to the report, long term mortgage rates should remain near record lows for the first half of 2013 and then gradually rise during the second half while still remaining below 4%. Property values are expected to continue to rise by approximately 2 to 3% in the coming year. Vacancy rates for apartments and single-family homes for sale could drop to 2002-2003 levels as new households grow faster than new construction. The mortgage refinance boom is expected to continue in the early part of 2013, but will be less than during 2012 with single family originations declining 15%. Multifamily lending is expected to rise by approximately 5%.

Low mortgage rates are set to continue into the new year. At the final Federal Open Market Committee (FOMC) meeting for 2012, the the Feds left short term interest rates near zero and stated that they will probably leave them there until the unemployment rate falls to 6.5% or below and the long term outlook for inflation exceeds 2.5% (predicted to be 2015). The Feds will also continue to buy $40 billion of mortgage backed securities and $45 billion of long-term Treasury bonds per month in an effort to increase spending, investment and hiring, as well as, boost the housing market.

HARP 2.0, the Home Affordable Refinance Program, will continue until the end of 2013. Many borrowers are still eligible for this program, although it is expected that this number will decrease from the amount seen during 2012. The same can be expected for the FHA streamline refinance with reduced mortgage insurance fees. Both of these programs target underwater borrowers who have loans prior to June 1, 2009. These two refinance programs are still the best of refinance offers available for existing homeowners who are interested in lower mortgage rates. If home prices continue to increase during 2013, some borrowers may find that they are able to refinance through traditional mortgage refinance products instead of special programs. There is still time to obtain either HARP or the FHA streamline refinance before 2012 ends.

FHA loan changes are slated to take place in 2013. The annual mortgage insurance premium will be increased and the ability to cancel FHA mortgage insurance will be eliminated. Although these may sound terrible, the MIP increase is small and should not be a burden for qualified borrowers. Once the loan has reached a 78% LTV, FHA mortgage holders should plan on refinancing through a regular conventional loan. Since many first time home buyers are not able to be approved for conventional loans due to stricter guidelines or the need for a lower down payment, FHA will remain popular despite any changes.

FHA has also extended its anti-flipping policy for two years until December 31, 2014. This is the third time this policy, which allows home buyers to flip the property within 90 days of purchase, has been extended.

Loan limits for both the GSE's, Fannie Mae and Freddie Mac, and FHA remain the same for 2013. The loan limit for the GSEs remains at $417,000 across the country and up to $625,500 in higher cost areas. The FHA loan limit starts are $271,050 and can be as high as $729,750 depending on the location of the property. In some areas, such as Hawaii and Alaska, the FHA loan limits are even higher.

The QRM (Qualified Residential Mortgage) and QM (Qualified Mortgage) rules will be introduced in the new year or when they are finalized. While these rules seem extensive, these rules are not much different than what originally existed prior to the housing boom and the birth of designer loans, many of which had no or little documentation required. For most home buyers who opt for regular conventional mortgages through the GSEs or FHA, these income rules should not have a major impact.

The biggest change to the housing industry make occur if there is no settlement made regarding the fiscal cliff. With tax increases hitting just about everyone, home buyers may not be able to purchase without extra funds for a down payment and, as a result, home sales will suffer. This may cause home prices to decline once again. In short, the entire housing industry may be at risk. If this was to occur, mortgage refinances should continue and possibly boom again as more homeowners try to free up some much needed cash.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders' rate sheets to determine the most accurate mortgage rates available to well qualified consumers at about a 1 point origination fee.