RPM Mortgage Forecast Part 1

I was pleased to be invited along with a select group of the other top local Realtors to hear Rob Hirt, the CEO and President of RPM Mortgage, speak about the economy and the mortgage market.  Rob is always very witty and funny along with making the mortgage market understandable and clear, so we were delighted to be able to hear his talk.

The first big announcement was that Platinum Capital, which until now has been a subsidiary partner of RPM, will be folded fully into the RPM branding and the parent corporation.  I don’t think this will change much of anything since we have already been reaping the benefits of the RPM parent, but just in case our loyal readers wonder why we no longer talk about Platinum Capital, you’ll know why.

Rob reviewed the causes of the current mortgage meltdown in a very funny and entertaining way.  He said  “it was as though the entire country had seen two hot looking women, NINA (No Income No Assets) and her equally air-brained sister, SISA (Stated Income Stated Assets) and decided they were just so enticing they just had to be a lot of fun — but then the lights came on and we realized they were really pretty ugly and came with a whole lot of baggage!”    It was a humorous way to discuss the ridiculous high-risk loans that started all this mess and the Credit default swaps that accompanied them.

Rob talked about the new rules as part of the Dodd-Frank financial reform act.  By April 1, 2011, rules will be issued as to what makes up a   “Qualified Residential Mortgage” (QRM).  If a lending institution follows the rules and has QRM mortgages, they will not be liable to hold as much reserves, but if they issue non -QRM loans, the will have to hold 5 percent of the total loan in reserve, which obviously reduces their ability to lend and their profitability.  Thus, Rob predicts that 95 percent of new loans will be QRM.  There will no longer be NINA and SISA, the ugly twins, but there will be able to be documented loans for self-employed people coming back.  Loans to value will be less than 80 percent.  He believes that the new rules will offer Debt to Income ratios up to 50% of all expenses.

Rob said multiple times that now is the greatest time to buy a home since 1970 based on the affordability index kept by the National Association of Realtors (NAR).  The core inflation level is at the lowest level since 1950 (when it first began to be tracked).  Home prices have also stabilized.

Quantitative Easing II was the next topic.  Rob explained that the Fed basically has two missions from Congress  by law — keep inflation under control and help to keep unemployment above target levels.  Target inflation levels are 2 percent, but inflation is only at .6 percent, and target unemployment levels are at 6 percent but is currently at 9.5 percent nationally (and more locally.)  Therefore, since they have a ways to go before they worry about inflation and a long way to go before they get unemployment down, easing the money supply (by essentially printing money via Treasury bills) is their only tool left since they can’t really lower interest rates any more.  So Rob believes we will see some inflation but also a decrease in unemployment.  Hooray!

Tomorrow — Part 2 with Rob’s forecast for 2011!