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The last five years we have been blessed with low interest rates spurred in large part by Quantitative Easing (the purchasing of US securities by the Fed in the open market). The Mortgage and Real Estate sectors as well as the American consumer have all been benefactors of this low rate environment, and played a part in contributing to the recovery in the US economy.

In December the Federal Reserve announced they would begin to taper its Quantitative Easing program beginning in January 2014, down to $75 billion from the current $85 billion.

So what happens to rates in 2014? Well it’s probably a safe bet to assume they go higher.

David Stevens, President of the Mortgage Bankers Association, gave his assessment of 2014. “We’re expecting $1.2 trillion in mortgage originations, a 32 percent decline from 2013.Purchase originations should increase nine percent, but refinance originations are expected to fall 57 percent with mortgage rates increasing to five percent for 2014.”

So is this the beginning of the end or just a new beginning?

Even if we face higher rates this year they are still at a low, just ask anyone who bought a home in the 1970s and early 1980’s. The purchase market will continue to be active as inventory begins to grow in both existing and new homes. As the American homeowner continues to see the value of their homes return this will spur refinance opportunities to homeowners that were previously shut out.

One particular segment of the population that could contribute to the growing purchase business in 2014 are the Millennials. David Stevens addressed this earlier in the year. “Today, the generation known as Millennials (1980-2000) makes up about 25 percent of American workers, according to the U.S. Bureau of Labor Statistics. By 2020, that number will grow to more than 40 percent. They are more mobile in their careers, have differing sources of income beyond the standard W-2 salaried sources like that of our parents, and have different ways of forming a household than we saw in our past. At some point they will need and want their own home – they can’t live in mom and dad’s basement their entire life. The key questions are, will they rent or will they buy, and will they have that choice? Are they suburbanites like their parents, or do they prefer urban areas closer to their place of employment and public transportation? According to the PulteGroup Home Index Survey (PGHI) released earlier this year, 65% of Millennial’s, who are renters with an income of more than $50,000, indicated their intention to buy has increased in the past year. Many in the survey viewed purchasing a home as a good investment.” (David H. Stevens)

As FNMA and FHLMC look to extricate themselves from the large role they play in the housing market private capital will begin to fill the void, and with this comes opportunities in 2014. QM attempts to make lending black or white when the reality is we live in the grey. Is a borrower with a 95% LTV, 680 score and 43% DTI (QM) a better ‘risk’ than a 65% LTV, 780 score but a 44% DTI (Non QM)? … maybe. Maybe not.

Private Capital will create an active market in Non QM loans and get back to ‘make sense’ lending, not the make ‘cents’ lending that got our industry in trouble in the past. Opportunities will exist to meet the needs of borrowers with higher debt levels, the self employed and clients with strong but varied forms of income and assets.

2014 brings with it increased regulation and higher rates but given what we have endured over the last few years, if we can survive that we will not only survive but thrive in 2014.