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Simon Tahan: The changing mortgage environment

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Simon Tahan Webster BankAs rising interest rates rattle the markets, Fairfield County is a microcosm for mortgage trends around the country. We’re seeing the first true purchase market in years, as well as a significant drop in requests for refinancing. But the inventory of homes is tight and so is the competition for mortgages, especially as online, nonbank lenders offer new options.

In Fairfield County, we’re experiencing a demand for jumbo mortgages — typically $450,000 or more. That’s a reflection of the cost of the region’s real estate.

It remains to be seen how much millennials will impact the future of this marketplace. One thing we do know: Two considerations may be influencing homebuying decisions.

CONSIDERATION NO. 1: THE NEW TAX LAW
It’s as yet unclear how much impact the 2017 Tax Cuts and Jobs Act will have on consumer behavior in the housing market. But home hunters should keep in mind: The standard deduction for mortgage interest is now capped at $10,000.

Jumbo mortgage payers can still deduct interest, but only by itemizing deductions. For joint filers, the mortgage limit is $750,000; for couples filing separately, it’s $375,000 each.

(The exception: Mortgages obtained before Dec. 15, 2017, are grandfathered at the old limits.)

Whether buying or selling, consumers need to consult their accountant on the tax implications.

CONSIDERATION NO. 2: THE NEW MORTGAGE LENDING LANDSCAPE
In the past few years, we’ve seen a dramatic shift as the Dodd-Frank Wall Street Reform and Consumer Protection Act changed the fundamentals of mortgage banking. The Act gave the federal government new regulatory power over the financial industry, which included a push for transparency and accountability after the meltdown of the too-big-to-fail financial institutions.

In a tight credit environment, with traditional banks laboring under more regulations, non-bank Fintechs entered the arena. They capitalized on technology to offer faster loans, reduce cycle times and lower costs. Online service set new expectations for an easier customer experience.

However, for a decision as important as a mortgage, some consumers still want the reassurance of a go-to mortgage specialist to answer their questions.

THE BANKS RESPOND WITH INNOVATION AND GUIDANCE
To compete, traditional banks are ramping up digital capabilities and streamlining back office operations. They’re making the mortgage process faster and less complex, mounting a powerful challenge to online competitors.

But banks will continue to offer something that the nonbank lenders can’t: access to the expertise of a local mortgage professional who will be bringing years of street-smart experience in the marketplace, taking care of a wide range of customer needs.

That’s especially important to millennials, who demand both digital speed and personal service.

Millennials bring their own challenges to the mortgage market. Rents are rising, making homeownership a more realistic option. However, saddled with student loan debt and faced with interest-rate hikes and higher home prices, they may balk at taking on more obligations, especially a jumbo mortgage.

The right guidance can clarify difficult areas and open up new paths to homeownership, especially for first-time homebuyers. The local banker can fill those roles by providing insight, accessibility and accountability that are hard to find online.

HOW TO SEE THINGS CLEARLY
There continues to be a need for consumer education. For example, many first-time homebuyers aren’t aware of state or local programs that can offer them down payment assistance. And while a mortgage search may begin online, an exploratory discussion with a knowledgeable lender may reveal possibilities the customer might otherwise never discover.

Also, people taking on a jumbo debt usually have significant needs for other banking services, including the investment expertise of a private banker, retirement planning guidance and an understanding of where their business and personal finances intersect.

Usually, a homebuyer’s first point of contact for insight is the Realtor. The Realtor’s relationship with local lenders is critical. It gives consumers two strong pillars of support for a decision they will live with for years.

Opinions expressed are those of the author and not Webster Bank N.A. They are not intended as financial or any other professional advice. Consult a professional with regard to your individual situation.

Simon Tahan is director of home loans at Webster Bank. He can be reached at STahan@WebsterBank.com.

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