Thoughts on the Mortgage Industry for 2007

Over the past two weeks mortgage rates have increased steadily. Is this a trend that will continue in 2007? It’s really anyone’s guess. Mortgage rates are tied closely to the 10-year treasury bond which changes daily based on market news. Many economists believe rates will increase throughout the year. I think most of the mortgage news we’ll see in 2007 will revolve around sub-prime financing (borrowers with less than perfect credit). The default rate on sub-prime loans has increased to record levels and several sub-prime lenders have gone out of business during the final months of 2006. Based on what we’re seeing at Keystone, sub-prime lender are tightening their guildelines which make it more difficult for sub-prime borrowers to qualify for a mortgage. I expect this tightening will become more wide spread as we go through 2007. With so many adjustable rate mortgages (ARMs) adjusting in 2007, I expect the rate of default on both conforming and sub-prime loans will increase since many of these borrowers will not have enough equity in their homes to refinance to fixed rates. On a more positive note, I believe 2007 will be the year of the “first time homebuyer”. Although rates are above their lowest levels, they are still historicaly low and with so many houses currently on the market I believe buyers will be able to negotiate great deals. It’s a great time for first-timers to get on the property ladder.

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